VOL.  XII 


INDIANA  UNIVERSITY  BULLETIN 


No.  4 


INDIANA  UNIVERSITY 

EXTENSION  DIVISION 


PROCEEDINGS  OF  A  CONFERENCE 
ON  TAXATION  IN  INDIANA 


Held  at  Indiana  University,  Blooming-ton,, Indiana 
Thursday   and    Friday,    February   5   and    6,    1914 


FOR    SALE    BY   THE    UNIVERSITY    BOOKSTORE,    BLOOMINGTON,    IND.        PRICE    FIFTY    CENTS 


GIFT  OF 


VOL.  XII  INDIANA   UNIVERSITY   BULLETIN 


No.  4 


INDIANA  UNIVERSITY 


EXTENSION   DIVISION 


Proceedings  of  a  Conference  on 
Taxation  in   Indiana 


HELD  AT  INDIANA  UNIVERSITY 

BLOOMINGTON,  INDIANA,  THURSDAY  AND   FRIDAY 
FEBRUARY  5  AND  6,   1914 


. 

0.  t- 


Contents 


ADDRESS  OF  WELCOME  .  By  President  William  Lowe  Bryan 5 

TAX  ADMINISTRATION  FROM  THE  STANDPOINT  OF  THE  STATE  TAX  COMMISSION. 

By  Hon.  Dan  M.  Link,  State  Tax  Commissioner  of  Indiana 8 

DEFECTS  OF  THE  PRESENT  SYSTEM  AND  NEEDED  CHANGES  IN  THE  TAXATION 

OF  MONEY  AND  CREDITS.    By  Hon.  Fred  A.  Sims,  Former  State  Tax 

Commissioner  of  Indiana 15 

DISCUSSION.  Led  by  Hon.  Jacob  P.  Dunn,  City  Controller  of  Indianapolis.  32 
TAXATION  OF  MONEY  AND  CREDITS  IN  MINNESOTA.  By  Raymond  V.  Phelan, 

Ph.D.,  Lecturer  in  the  University  of  Minnesota 44 

DEFECTS  IN  THE  TAXATION  OF  CORPORATIONS.  By  Oscar  L.  Pond,  Ph.t).,  of 

Indianapolis,  Author  of  "Municipal  Control  of  Public  Utilities" 48 

DISCUSSION.  Led  by  Frank  T.  Stockton,  Ph.D.,  Assistant  Professor  of 

Political  Economy,  Indiana  University 58 

SHOULD  A  STATE  TAX  ASSOCIATION  BE  ORGANIZED  IN  INDIANA?  Discussion 

led  by  Mr.  Ernest  I.  Lewis,  of  Indianapolis 68 

RECENT  TENDENCIES  IN  TAXATION.  By  Hon.  Lawson  Purdy,  President  of 

Department  of  Taxes  and  Assessments,  New  York  City 86 

SOME  FEATURES  OF  THE  MICHIGAN  SYSTEM.  By  David  Friday,  Ph.D.,  Pro- 
fessor of  Political  Economy,  University  of  Michigan 95 

TAXATION  OF  THE  UNEARNED  INCREMENT.  By  Joseph  French  Johnson, 

Ph.D.,  Dean  of  School  of  Commerce,  New  York  University 109 

DISCUSSION.  Led  by  J.  L.  Leonard,  Ph.D.,  Professor  of  Political  Economy, 

Wabash  College 117 

REPORT  OF  THE  COMMITTEE  ON  ORGANIZATION 120 

THE  APPOINTMENT  AND  SUPERVISION  OF  LOCAL  ASSESSORS.  By  Thomas 

S.  Adams,  Ph.D.,  Member  of  the  Wisconsin  Tax  Commission 121 

REPORT  OF  THE  COMMITTEE  ON  NOMINATIONS  FOR  OFFICERS  OF  THE  INDIANA 

TAX  ASSOCIATION 133 

CLASSIFICATION  OF  LAND  FOR  PURPOSE  OF  TAXATION.  By  William  A. 

Rawles,  Ph.D.,  Professor  of  Political  Economy,  Indiana  University. .  137 

DISCUSSION 153 

THE  NEED  OF  A  SPECIAL  TAX  COMMISSION.  By  John  A.  Lapp,  Ph.B.,  Director 

of  Bureau  of  Legislative  and  Administrative  Information  (Indiana) . .  161 
THE  AMENDMENT  OF  THE  TAX  CLAUSE  OF  THE  CONSTITUTION  OF  INDIANA. 

By  Hon.  Eben  H.  Wolcott,  State  Tax  Commissioner  of  Indiana 166 

DISCUSSION.  Led  by  Hon.  Charles  F.  Remy,  Former  Clerk  of  Supreme 

Court 177 

REPORT  OF  COMMITTEE  ON  RESOLUTIONS.  .  .  188 


333J.77 


Proceedings  of  a  Conference  on  Taxation 
in  Indiana 


THURSDAY,  FEBRUARY  5— MORNING  SESSION 

[THE  conference  met  in  the  auditorium  at  the  Student  Build- 
ing of  Indiana  University,  at  10 :30  a.  m.,  and  was  called  to  order 
by  Dr.  William  Lowe  Bryan,  President  of  the  University.] 

DR.  BRYAN  :  A  notable  lecturer  once  said  here  before  our  stu- 
dents that  mankind  had  two  chief  interests,  money  and  religion. 
Now  this  week  we  have  both  of  these  interests  represented  here,  one 
of  them  in  a  conference  of  the  religious  workers  in  the  state  uni- 
versities, and  this  one,  this  tax  conference ;  and  I  make  this  remark 
in  the  outset  because  I  wish  to  explain  that  it  will  be  necessary 
for  me  to  retire  at  once  from  this  conference  in  order  to  introduce 
a  speaker  in  the  other  one. 

The  Latin  historian  Livy  relates  that  when  the  Gauls  were 
about  to  capture  and  destroy  Rome  some  four  hundred  years  be- 
fore Christ,  the  people  decided  to  have  the  best  of  their  young 
men  go  into  the  impregnable  citadel  with  the  remaining  food 
supply  so  that  they  could  survive  and  perpetuate  the  Roman  name, 
while  the  rest  of  the  people,  commoners  and  senators,  would  re- 
main and  die  by  the  hand  of  the  Gauls.  This,  he  says,  was  done. 
Commoner  and  Senator  accepted  death  together  so  that  a  few  of 
their  blood  might  survive  to  maintain  the  Roman  State. 

Eight  hundred  years  later  the  Roman  Empire  was  invaded  and 
overwhelmed  by  new  breeds  of  barbarians  from  the  North,  the 
Goths  and  the  Vandals.  Two  Roman  historians  of  the  latter  period, 
Ammianus  and  Orosius,  declare  that  when  the  Goths  and  Vandals 
invaded  the  Empire  they  were  aided  by  large  numbers  of  the 
Roman  people  who  preferred  the  rule  of  the  invaders  to  the  burden 
of  taxes  which  the  Empire  imposed  upon  them. 

That  is  to  say:  Four  hundred  years  before  Christ  there  was 
a  Roman  patriotism  of  such  force  and  quality  that  it  had  in  it  the 
potential  conquest  of  the  world;  four  hundred  years  after  Christ 
that  patriotism  was  dead, — killed  by  injustice.  ' '  Rome  was  killed, ' ' 
said  a  historical  scholar  to  me,  "by  unjust  taxation." 

Benjamin  Harrison,  a  thoroughgoing  conservative  upon  all  pub- 
lic questions,  expressed  in  one  of  his  last  speeches  the  serious  fear 

(5) 


6  ,«    -iKDIANA    UNIVERSITY 

that  unfairly  distributed  taxation  would  do  in  our  country  exactly 
the  same  thing  which  Ammianus  and  Orosius  say  it  did  in  the 
Roman  Empire.  He  says:  "I  want  to  emphasize,  if  I  can,  the 
thought  that  the  preservation  of  this  principle  of  a  proportionate 
contribution,  according  to  the  true  value  of  what  each  man  has,  to 
the  public  expenditures,  is  essential  to  the  maintenance  of  our 
free  institutions,  and  of  peace  and  good  order  in  our  communities. " 
Again  he  says:  "Mr.  Lincoln's  startling  declaration  that  this 
country  could  not  continue  to  exist  half  slave  and  half  free  may 
be  paraphrased  today  by  saying  that  this  country  can  not  continue 
to  exist  half  taxed  and  half  free. ' '  Again :  ' '  It  is  not  only  wrong, 
but  it  is  unsafe,  to  make  a  show  in  our  homes  and  on  the  street  that 
is  not  made  in  the  tax  returns. ' '  Again :  ' '  The  people;  will  not 
consent  that  the  present  state  of  things  shall  be  accepted  as  a  per- 
manent condition."  Finally,  with  true  Harrisonian  balance  of 
judgment,  he  says :  "In  the  discussion  of  all  of  these  social  ques- 
tions good  temper  is  essential.  Men  must  get  together  and  use 
facts,  not  rhetoric.  We  do  not  want  crusaders  or  a  crusade." 

Since  President  Harrison  uttered  these  statesmanlike  words  in 
1898,  there  has  been  a  very  great  advance  in  the  public  conscience 
and  in  the  public  intelligence  upon  this  great  matter.  Of  that 
advance  there  is  no  better  indication  than  this  Conference,  whose 
members  come  together  for  thoroughgoing  consideration  of  public 
taxation  and  the  profound  social  issues  connected  therewith. 

I  extend  to  you,  gentlemen  of  the  conference,  a  most  hearty 
welcome.  It  is  my  privilege  to  introduce  to  you  as  chairman  of 
this  conference,  a  man  who  stands  four  square  to  all  the  winds 
that  blow  in  Indiana,  and  who  has  for  many  years — Mr.  John  B. 
Stoll,  of  South  Bend.  (Applause.) 

CHAIRMAN  ST;OLL:  Gentlemen,  I  feel  assured  that  this  assem- 
bly has  a  high  appreciation  of  the  words  of  welcome  uttered  by 
the  distinguished  head  of  this  great  institution  of  learning.  The 
importance  of  this  conference  is  so  well  and  so  aptly  set  forth  in 
this  address  of  welcome  that  it  furnishes  at  once  a  clear  indication 
of  what  ought  to  be  the  subject  of  discussion  during  the  continu- 
ance of  this  conference. 

I  feel  quite  assured  that  no  subject  which  the  people  of  Indiana 
can  consider  and  discuss  surpasses  in  importance  the  question  of 
equal  and  just  taxation.  We  all  know  the  difficulties  encountered 
in  framing  a  tax  law  for  the  state,  a  law  that  is  likely  to  prove 


TAXATION   IN   INDIANA  7 

satisfactory  to  the  great  body  of  the  people  of  this  great  common- 
wealth. Therefore,  it  occurs  to  me,  that  one  of  the  first  subjects  to 
be  taken  up  is  the  cultivation  of  a  sound,  wholesome  public  senti- 
ment, so  that  men  of  thought,  men  of  knowledge,  men  of  experi- 
ence may  be  enlisted  in  the  general  movement  for  the  preparation 
of  a  tax  system  that  will  correspond  to  the  ideas  and  the  thoughts 
expressed  in  the  address  o£  welcome  and  credited  to  one  of  In- 
diana's great  statesmen,  the  laite  Benjamin  Harrison. 

It  is  to  be  earnestly  hoped  that  all  the  difficulties  that  confront 
the  people  of  this  state  in  the  securing  of  such  an  equitable  and  just 
tax  system  will  receive  due  consideration,  and  that  no  time  will 
be  wasted  in  the  discussion  of  impractical  methods,  that  experi- 
ence has  taught  to  be  such. 

I  do  not  believe  that  there  are  many  men  in  this  state,  or  any 
other  state,  that  would  care  to  undertake  to  prepare  a  tax  law  with- 
out carefully  consulting  similar  enactments  in  all  the  other  pro- 
gressive commonwealths  of  this  great  country.  One  need  not 
necessarily  attempt  to  be  particularly  original  in  the  preparation  of 
a  document  of  that  kind.  Experience  must  of  necessity  be  taken 
into  account,  so  that  when  a  bill  is  framed  to  be  submitted  to  the 
gracious  consideration  of  the  legislative  power  there  may  be  just 
reason  to  believe  it  will  be  accepted  by  that  body  and  framed  into 
a  living  law. 

Gentlemen  of  this  convention,  you  have  a  highly  important 
duty  to  perform.  You  come  here  from  distant  parts  of  the  state, 
I  hope  and  trust  actuated  by  but  one  purpose,  that  of  contributing 
something  towardsi  improving  the  faulty  provisions  of  the!  tax  sys- 
tem of  the  State  of  Indiana ;  so  that  every  citizen  thereof  may  feel 
assured  that  there  is  a  prospect  of  a  just  and  equitable  provision 
in  the  near  or  distant  future.  (Applause.) 

[The  conference  was  organized  by  the  choice  of  Mr.  Fred  Bates 
Johnson  of  Indianapolis,  as  secretary.  It  was  also  voted  that  all 
resolutions  which  might  be  offered  should  be  referred  to  a  commit- 
tee of  three  for  consideration  and  report.  The  committee,  as  sub- 
sequently appointed  consisted  of  Hon.  Dan  M.  Link,  Mr.  Eben  H. 
Wolcott,  and  Dr.  Oscar  L.  Pond.] 

CHAIRMAN  STOLL:  Next  in  order  will  be  a  paper  entitled, 
"Tax  Administration  from  the  Standpoint  of  the  State  Tax  Com- 
mission/' by  Hon.  Dan  M.  Link,  State  Tax  Commissioner. 


8  INDIANA  UNIVERSITY 

TAX  ADMINISTRATION  FROM  THE  STANDPOINT  OP  THE  STATE  TAX 

COMMISSION 

MR.  LINK  :  Twenty-three  years  have  elapsed  since  the  codifica- 
tion of  our  tax  laws  by  the  legislature.  This  was  an  event  that 
ushered  in  a  new  epoch  in  tax  administration  in  this  country. 
Spasmodic  and  experimental  attempts  had  been  made  in  other 
states  to  rectify  and  improve  what  had  proved  to  be  wholly  ineffec- 
tual and  largely  impotent  systems  of  tax  administration.  The 
germ  of  the  idea  of  centralization  of  control  of  assessments  was 
being  slowly  developed  and  some  states  had  gone  so  far  as  to 
create  special  tax  commissions  and  state  boards  of  equalization. 
These  bodies  were  loosely  constructed,  had  limited  powers,  and 
there  seemed  to  be  a  very  inadequate  conception  of  the  field  of 
'  usefulness  which  they  might  have  been  made  to  occupy.  There 
was  no  coordination  between  these  officers  and  the  local  assessors 
and  no  attempt  was  made  to  systematize  the  machinery  of  assess- 
ments from  the  ground  up.  California  and  New  York  had  made 
a  feeble  and  ineffectual  effort  to  do  something  toward  correcting 
the  plainly  apparent  evils,  but  the  people  as  a  whole  had  given  the 
matter  very  little  attention  and  were  hostile  to  .and  suspicious  of 
the  students  of  taxation  who  were  trying  to  better  conditions.  In 
Indiana  we  had  run  the  whole  scale  of  abortive  attempts  to  regu- 
late and  establish  competent  and  adequate  assessment  machinery. 
Nothing  in  the  whole  range  of  legislation  lends  itself  so  readily  to 
legislative  experiment  as  taxation.  No  one  is  ever  satisfied  with 
anything  we  have  and  tax  tinkering  was  the  biennial  amusement 
of  the  legislature.  Some  times  the  assessor  was  a  township  official, 
some  times  a  county  official;  the  county  board  of  equalization  was 
at  one  time  appointive,  at  another  time  ex-officio,  and  there  were 
at  other  times  district  boards  of  equalization,  representatives  from 
which  composed  the  state  board  of  equalization,  and  that  was 
about  the  last  word  in  inefficiency  in  tax  administration.  In  1872 
there  was  created  a  small  state  board  composed  of  certain  state 
officials  acting  ex-officio  with  additional  powers  of  a  limited  charac- 
ter in  the  assessment  of  certain  corporations.  Special  tax  com- 
missions were  created  which  studied  and  recommended  with  but 
litlh'  effect  until  the  state  finally  reached  that  condition  of  penury 
where  it  was  borrowing  money  to  pay  interest  on  borrowed  money ; 
chaos  reigned  in  taxation  and  millions  upon  millions  of  dollars  of 
property  were  not  contributing  a  dollar  to  the  support  of  the  gov- 
ernment 


TAXATION   IN   INDIANA  9 

This  was  the  condition  of  affairs  when  the  legislature  of  1891 
met,  and  it  is  reasonable  to  suppose  that  the  pinch  of  necessity  had 
something  to  do  with  the  activity  of  the  general  assembly  of  that 
year  in  attempting  to  relieve  the  situation.  Of  the  details  and  the 
history  of  that  great  work  I  will  not  attempt1  to  speak  for  there  are 
others  living,  at  least  one  of  whom  is  on  this  program,  who  were 
participants  in  that  work  and  can  speak  with  authority.  The  code 
which  was  adopted  was  not  a  remodeling  or  amendment  of  pre- 
existing laws,  but  was  in  some,  and  in  its  most  important  aspects, 
distinctly  original.  The  idea  of  centralization  in  tax  administra- 
tion was  actually  born.  The  office  of  county  assessor  invested  with 
supervisory  powers  was  created  along  with  a  permanent  state  tax 
commission  with  extensive  powers  of  assessment  of  corporations, 
and  what  was  thought  to  be  adequate  power  of  control  over  local 
assessors  and  assessments.  Hon.  Timothy  E.  Howard,  Hon.  J.  P. 
Dunn,  and  others  still  living,  who  were  active  participants  in  that 
struggle,  can  tell  how  the  life  of  a  great  party  was  threatened  be- 
cause it  had  the  courage  to  grapple  with  and  work  out  to  a  sensi- 
ble, and  equitable  solution,  a  problem  which  was  baffling  the 
legislatures  of  half  the  states  of  the  union.  By  this  law  the  great 
corporations  owning  public  utilities  were  first  made  to  bear  their 
share  of  the  tax  burden  of  the  state.  The  wise  judgment  of  the 
proponents  of  this  measure  has  been  vindicated  by  the  action  of 
more  than  half  of  the  states  in  creating  permanent  tax  commis- 
sions, and  by  the  fact  that  the  continuance  of  our  tax  commission 
has  long  since  ceased  to  be  an  issue  in  our  politics. 

Outside  of  the  substitution  of  an  additional  commissioner  for 
the  governor  and  a  few  minor  changes  in  the  methods  of  assess- 
ment of  corporations,  our  taxing  law  stands  today  practically  as 
it  was  enacted  in  1891.  Other  states  which  paid  us  the  sincerest 
compliment  by  patterning  after  us  have  from  time  to  time  improved 
on  the  original  until  Indiana  is  no  longer  regarded  as  a  leader  in 
taxing  methods,  and  students  of  taxation  and  special  tax  commis- 
sions do  not  flatter  us  by  frequent  visits  of  investigation  as  they 
once  did,  to  learn  the  secret  of  just  and  equitable  taxation. 

The  last  quarter  of  a  century  has  seen  a  world  rebuilt  economi- 
cally and  socially.  It  has  witnessed  a  revolution  in  finance,  the 
evolution  of  the  corporation  from  a  mere  synonym  for  a  railroad  or 
a  colossal  mercantile  or  manufacturing  institution  to  a  business 
necessity  embracing  all  sorts  of  enterprises  large  and  small  and  the 
accepted  form  of  conducting  commercial  affairs.  Public  utility 


10  INDIANA   UNIVERSITY 

companies  have  been  organized  to  conduct  and  control  everything 
relating  to  public  service.  All  the  affairs  of  human  life  have  be- 
come more  complex,  and  the  direct  responsibility  of  the  individual 
to  the  state  and  to  his  fellow  man  has  become  attenuated  and 
obscured  by  the  intervention  of  the  corporate  entity.  Each  year 
wealth  has  become  less  visible  and  tangible  and  the 'relative  values 
of  property  more  difficult  of  appraisal,  and  'the  ever  elusive  intan- 
gible property  has  found  new  ways  of  hiding  and  escaping  its 
just  share  of  the  public  tax  burden. 

The  incidence  of  taxation  is  continually  shifting,  and  the  diffi- 
culty of  adjusting  taxes  so  that  all  property  owners  may  be  fairly 
taxed  is  ever  increasing,  and  the  condition  is  keenly  accentuated 
by  the  gradual  but  steady  increase  in  the  tax  rates  due  to  the 
constant  broadening  of  the  functions  of  government  and  the  ex- 
penditure by  the  state  and  municipalities  of  enormous  sums  to  meet 
the  demands  of  modern  society  for  better  roads,  better  health,  better 
citizens,  and  the  scientific  treatment  and  humane  care  of  unfor- 
tunates. What  is  our  situation,  therefore,  in  the  light  of  our 
twenty-three  years'  experience  with  our  present  tax  system,  and 
with  reference  to  the  conditions  in  other  states  under  other  systems 
of  taxation? 

This  question  I  will  attempt  to  answer  with  reference  to  the 
limitations  of  our  present  constitution  and  from  an  entirely  prac- 
tical stand  point. 

Indiana  has  the  general  property  tax,  and  the  key  to  successful 
and  equitable  taxation  under  such  system  depends  very  largely, 
indeed  almost  entirely,  on  the  degree  of  centralization  in  control 
of  assessors  by  the  tax  commission.  To  this  should  be  added  the 
power  in  the  tax  commission  as  an  original  board  of  assessments 
to  assess  all  public  service  corporations.  The  trend  of  tax  legis- 
lation is  toward  centralization,  and  it  is  apparent  that  there  can 
never  be  adequate  supervision  of  assessments  without  control  of 
assessors.  In  Indiana  the  tax  commission  is  burdened  with  the 
responsibility  of  seeing  ''that  all  assessments  of  property  in  this 
state  are  made  according  to  law",  without  arming  the  commission 
with  any  weapon  which  can  be  used  on  assessors  who  refuse  to 
MK8S  su-ronlincr  to  law.  There  sin-  ninety-two  county  assessors 
and  over  eleven  hundred  township  assessors  with  as  many  more 
deputies  who  are  answerable  to  no  one  except  the  persons  they 
assess.  The  tax  commission  has  no  power  to  remove  any  assessor, 
to  order  a  reassessment,  or  otherwise  question  any  act  of  an  assessor 
except  upon  appeal.  The  elemental  weakness  of  the  system  lies 


TAXATION    IN   INDIANA  11 

in  the  fact  that  there  can  be  no  such  thing  as  state  wide  equality 
in  assessments  unless  there  is  some  way  to  control  the  initial  assess- 
ments, and  that  initial  assessments  cannot  be  controlled  without 
control  of  the  assessor  who  makes  them.  The  isolated  cases  which 
come  up  on  appeal  or  before  a  board  of  review  are  too  insignificant 
in  number  to  have  any  general  equalizing  effect.  To  be  sure  where 
there  is  a  general  tendency  to  over-assess  or  under-assess  in  a 
township  as  compared  with  other  townships  in  the  same  county  the 
board  of  review  can  correct  it  by  making  a  horizontal  increase  or 
decrease  in  the  entire  township,  and  where  there  is  a  general  in- 
equality in  the  assessment  of  a  county  as  compared  with  other 
counties  the  tax  commission  can  make  a  horizontal  increase  or  de- 
crease "on  all  the  property  in  the  county,  but.  this  remedy  does  not 
reach  the  individual  inequities,  nor  does  it  in  any  way  punish  the 
incompetent  or  dishonest  assessor.  No  amount  of  activity  on  the 
part  of  the  tax  commission  can  have  any  greater  effect  than  to 
slightly  ameliorate  conditions.  As  long  as  local  assessors  are  sub- 
ject! to  local  influences  and  regard  themselves  as  agents  of  the 
taxing  municipalities  in  which  they  are  elected  rather  than  as 
agents  and  representatives  of  the  state  it  would  be  unnatural  and 
unreasonable  to  expect  all  the  assessors  of  the  state  to  assess  alike. 
Every  county  presents  taxing  problems  which  are  peculiar  to  ft. 
In  the  more  opulent  counties  sufficient  taxes  can  be  raised  for  local 
purposes  without  distressing  property  owners  with  heavy  assess- 
ments, and  the  corollary  of  this,  which  is  never  overlooked,  is,  that 
the  amount  of  tax  paid  to  the  state  will  be  less.  In  the  poorer 
counties  the  stress  of  necessity  requires  that  assessments  be  heavy 
in  order  to  provide  for  local  revenues  and  thus  the  poor  are  made 
poorer  and  penalized  because  of  their  misfortune.  In  large  cities 
the  assessment  of  property  is  a  difficult  task  at  best,  and  the  escape 
of  much  of  the  intangible  property  is  inevitable,  yet  the  assess- 
ment of  these  great  centers  of  wealth  is  made  in  a  manner  which 
would  be  ludicrous  if  it  were  not  for  the  serious  consequences 
which  follow.  For  instance  Mr.  Berry,  one  of  the  most  capable 
assessors  in  the  state,  in  assessing  Center  township  in  Indianapolis, 
requires  the  services  of  one  hundred  and  eighty  deputies  during 
the  assessing  season.  They  receive  two  dollars  a  day,  and  owing 
to  the  short  period  of  employment  and  the  small  wages,  he  is 
obliged  to  make  the  best  of  such  material  as  he  can  get.  What 
sort  of  assessment  would  you  expect  under  such  conditions? 

As  I  have  heretofore  suggested,  the  remedy  for  the  present 
unsatisfactory  condition  lies  in  a  centralization  of  authority  over 


12  INDIANA    UNIVERSITY 

assessors  as  well  as  assessments.  I  believe  that  the  general  dis- 
satisfaction with  the  general  property  tax  is  due,  in  a  large  meas- 
ure, to  inefficient  administration,  although  it  has  undoubtedly  other 
elemental  weaknesses.  Other  states  which  retain  in  whole  or  in 
part  the  general  property  tax  are  entirely  discarding  the  old 
system  of  assessment.  Wisconsin  and  Ohio  each  has  abandoned 
the  elective  system  and  have  appointive  assessors.  Ohio,  notwith- 
standing its  recent  constitutional  convention,  retains  the  general 
property  tax,  and  in  October  put  into  operation  an  appointive 
assessor  system  which  seems  destined  to  be  the  final  effort  to  prove 
or  disprove  the  utility  of  the  general  property  tax.  This  experi- 
ment will  be  watched  with  great  interest  by  all  persons  who  are 
students  of  the  science  of  taxation.  The  placing  of  the  assessment 
of  property  upon  a  sensible,  business  basis,  would  in  Indiana  as 
it  has  in  other  states  meet  with  opposition.  It  would  be  said  to 
be  an  interference  with  local  self  government,  and  owners  of  in- 
tangible property  and  those  who  have  sufficient  influence  to  escape 
in  whole  or  in  part  any  sort  of  assessment  would  be  opposed  to  it, 
but  taxation  is  essentially  a  function  of  the  state.  The  revenues 
of  the  state  are  derived  almost  entirely  from  -the  general  property 
tax.  The  state  collects  and  disburses  a  large  part  of  the  common 
school  tax.  The  assessments  of  property  are  made  by  one  class  of 
officers  at  one  time  for  all  purposes,  and  upon  these  assessments 
all  tax  levies  are  spread  and  all  revenues  from  taxation  are  derived. 
It  is  a  work  which  requires  good  judgment,  expert  knowledge, 
and  integrity,  and  one  in  which  efficiency  .can  be  acquired  only 
through  experience.  It  should  be  a  vocation  and  not  merely  an 
avocation.  The  under-assessment  of  property  in  Posey  county 
affects  the  tax  payer  in  Steuben  county  and  in  every  other  county 
in  the  state,  so  that  a  local  assessor  acts  in  more  than  a  local  capa- 
city; he  is  the  agent  and  representative  of  all  the  tax  payers  in 
the  state,  and  all  are  affected  by  his  acts.  I  will  not  attempt  to 
discuss  in  detail  the  method  of  appointment  and  supervision  of  local 
assessors  because  that  subject  will  be  presented  by  another  on  the 
program  who  will  speak  with  the  authority  not  only  of  observation 
but  of  actual  experience. 

I  want  to  briefly  tell  of  the  efforts  of  the  tax  commission  to 
secure  equitable  assessments  and  what  results  are  being  achieved. 
The  taxing  season  is  opened  each  year  by  a  state  meeting  of  the 
county  assessors,  which  is  usually  held  the  first  or  second  week  in 
January.  During  the  three  day  meeting  the  general  work  of  the 
year  is  discussed  and  committees  on  different  classes  of  property 


TAXATION    IN    INDIANA  13 

arrange  for  uniformity  in  assessment.  These  committees  are  ap- 
pointed by  the  tax  commission  and  the  members  are  grouped  with 
reference  to  the  predominating  character  of  property  in  their 
respective  counties.  After  this  meeting  and  before  the  assessing 
season  begins  district  conferences  are  held  at  which  county  assess- 
ors, auditors,  treasurers,  and  township  assessors  of  a  group  of 
six  or  more  counties  are  gathered  together  and  the  assessments  of 
the  group  of  counties  are  compared  more  in  detail.  At  these  meet- 
ings counties  which  are  under-assessing  are  likely  to  be.  complained 
of  byx  their  neighbors.  There  is  a  general  discussion  of  values  of 
different  classes  of  property  and  exchange  of  information.  Dur- 
ing the  assessing  season  each  county  in  the  state  is  visited  by  a 
member  of  the  commission  and  a  conference  is  held  with  the  town- 
ship assessors  and  their  deputies.  Tax  lists  are  examined  and  a 
comparison  of  values  made  with  returns  from  other  counties.  In- 
numerable questions  relating  to  assessments  come  up  at  these 
meetings  and  the  local  assessors  are  inspired  to  do  better  work. 
The  fact  that  their  work  is  being  scrutinized  by  the  tax  commis- 
sion also  has  a  beneficial  effect.  Each  assessor  is  asked  to  keep 
a  memorandum  of  the  assessments  of  each  species  of  property  and 
to  make  return  of  the  same  and  the  latter  reports  these  valuations 
to  the  tax  commission  and  these  reports,  are  compared  with  those 
from  other  counties,  with  the  state  statistician's  returns,  and  with 
the  latest  Federal  census  bulletins.  These  reports  are  made  by 
the  township  and  county  assessors  as  a  favor  to  the  tax  commis- 
sion; they  are  entirely  voluntary,  and  some  counties  refuse  to 
make  returns  at  all,  or  the  returns  are  so  apparently  fictitious  as 
to  be  of  no  value.  It  gives  me  pleasure  to  say  that  a  great  ma- 
jority of  the  county  and  township  assessors  are  efficient  and  honest 
officers,  but  the  weak  point  in  the  system  is  the  inability  of  the 
commission  to  deal  with  the  minority  who  are  incapable,  or  in- 
efficient, or  dishonest.  In  counties  where  the  commission  is  cogni- 
zant of  flagrant  violations  of  the  law  it  has  no  power  to  remove 
assessors,  or  order  a  re-assessment,  or  to  in  any  way  change  the 
assessment  except  by  making  a  uniform  change  in  the  total  as- 
sessed valuation  of  the  county,  thus  penalizing  the  honest  tax  payer 
in  order  to  reach  the  dishonest  tax  official  and  the  beneficiaries  of 
his  under-assessments.  At  the  last  session  of  the  State  Board  of 
Tax  Commissioners  the  assessments  of  twenty-five  counties  were 
raised.  This  action  was  taken  as  a  last  resort  and  after  it  was 
demonstrated  that  in  no  other  way  could  equality  of  assessments  as 
between  counties  be  enforced. 


14  INDIANA    UNIVERSITY 

The  experience  of  the  tax  commission  has  proven  another  thing, 
and  that  is,  that  selfishness  is  not  alone  a  quality  of  the  individual, 
but  affects  communities  as  well.  In  the  assessment  of  property  the 
taxpayers  and  assessors  of  one  township  will  jockey  for  favorable 
assessments  as  against  the  other  townships  of  the  same  county,  and 
that  counties  take  great  care  in  seeing  that  their  assessments  are 
no  higher,  and  if  anything  a  little  lower,  than  the  assessments  of 
their  neighbors.  The  tax  going  to  the  state  is  especially  in  dis- 
favor, and  is  looked  upon  as  "paying  tribute  to  Caesar",  and  any 
plan  by  which  a  part  of  this  burden  can  be  shifted  is  looked  upon 
as  justifiable  and  ethical. 

Pride  in  local  industries  and  institutions  is  another  obstacle  to 
fair  assessments.  The  intense  rivalry  among  cities  and  towns  for 
industrial  plants  encourages  tacit  agreements  that  assessments  for 
taxation  shall  be  placed  at  a  minimum.  The  fact  that  assessors  are 
elected  by  the  people  of  the  community  gives  these  institutions  a 
weapon  which  they  are  not  slow  to  use,  and  enables  them  to  wield 
an  influence  which  cannot  be  overcome  by  any  outside  agency  of 
the  government  like  the  tax  commission.  One  county  of  this  state 
is  practically  a  reclaimed  wilderness  of  sand  dunes  and  jack  pines. 
It  was  taken  in  its  primeval  condition  and  turned  into  one  of  the 
industrial  centers  of  the  world.  Seventy-five  per  cent  of  its  popula- 
tion depends,  directly  or  indirectly,  on  these  great  manufacturing 
industries  for  their  subsistence.  The  amount  of  capital  invested 
is  so  colossal  that  only  a  tithe  need  be  assessed  in  order  to  furnish 
the  local  taxing  municipalities  with  sufficient  revenues.  Is  it  to 
be  wondered  at  that  there  should  be  under-assessments  in  such  case  ? 

These,  are  a  few  of  the  perplexing  problems  with  which  the  tax 
commission  is  obliged  to  contend,  and  for  which  there  seems  to  be 
no  adequate  solution  except  through  further  legislation.  At  pres- 
ent we  are  trying  to  ameliorate  this  condition  by  giving  as  much 
attention  as  possible  to  individual  assessors  and  assessments 
through  personal  visits  and  through  co-operation  with  county  as- 
sessors. These  efforts  have  not  been  entirely  devoid  of  results. 
The  present  township  assessors  have  been  in  office  six  years  and  the 
county  assessors  four  years  and  a  sufficient  length  of  time  has 
elapsed  for  them  to  become  more  or  less  familiar  with  tax  condi- 
tions. All  of  them  go  out  of  office  this  fall,  however,  and  the  im- 
portant task  of  assessing  real  estate  in  1915  will  have  to  be  taken 
up  with  a  new  and  inexperienced  set  of  assessors.  All  the  efficiency 
gained  by  the  present  assessors  during  their  terms  of  office  will 
be  wholly  lost  and  the  work  of  education  will  have  to  be  begun  all 


TAXATION   IN   INDIANA  15 

over  again.    Upon  what  grounds  of  political  theory  or  expediency 
are  we  justified? 

A  change  in  our  taxing  system  must  come.  If  we  have  a  con- 
stitutional convention  the  opportunity  will  present  itself  for  an' 
advanced  and  modern  system;  if  we  do  not  have  a  constitutional 
convention  there  should  be  legislation  which  would,  to  some  extent 
at  least,  remedy  some  of  the  existing  evils.  The  time  has  come  for 
the  people  of  Indiana  to  become  acquainted  with  one  of  the  func- 
tions of  government  which  vitally  affects  every  citizen,  and  the 
principles  of  which  have  been  given  less  attention  in  recent  years 
than  any  other  department  of  government.  This  conference  will 
give  publicity  to  this  question  and  encourage  public  discussion,  and 
once  the  public  becomes  interested  we  may  reasonably  expect  that 
public  sentiment  and  opinion  will  be  given  expression  through 
legislative  or  constitutional  changes.  (Applause.) 

CHAIRMAN  STOLL  :  I  desire  to  avail  myself  of  the  opportunity 
to  say  that  if  the  papers  following  this  one  are  of  equal  interest 
and  as  much  excellence  as  the  one  we  have  just  listened  to,  every 
individual  assembled  here  will  be  amply  repaid  for  the  trouble  and 
expense  of  coming.  The  next  paper,  "Defects  of  the  Present  Sys- 
tem and  Needed  Changes  in  the  Taxation  of  Money  and  Credits," 
by  Hon.  Fred  A.  Sims,  former  State  Tax  Commissioner  of  In- 
diana, is  now  in  order. 

DEFECTS  OF  THE  PRESENT  SYSTEM  AND  NEEDED  CHANGES  IN  THE 
TAXATION  OF  MONEY  AND  CREDITS 

MR.  FRED  A.  SIMS:  Mr.  President,  ladies  and  gentlemen — At 
the  November  election  of  the  present  year  there  will  be  submitted 
to  the  voters  of  Indiana  the  question  as  to  whether  or  not  they 
favor  a  constitutional  convention.  "If  a  majority  of  the  electors 
voting  at  such  election  shall  be  in  favor  of  calling  a  constitutional 
convention,  then  a  constitutional  convention  shall  be  held  in  the 
State  of  Indiana  under  the  provisions  of  this  Act"  (Acts,  1913, 
p.  814).  Section  13  of  that  act  provides  for  the  organization  of 
such  convention  in  the  city  of  Indianapolis  on  the  first  Monday  of 
May,  1915,  in  the  event  the  proposition  carries.  The  expression 
of  public  opinion  both  before  and  at  the  time  of  the  passage  of 
this  act,  and  the  form  of  the  ballot  provided  therein,  seemingly 
indicates  a  strong  probability  of  a  result  favorable  to  the  holding 
of  such  a  Convention.  It  is  therefore  likely  that  we  are  within 
approximately  fifteen  months  of  this  eventuality. 


16  INDIANA   UNIVERSITY 

At  the  session  of  the  Legislature  referred  to,  Senator  George 
Wood,  representing  Hamilton  and  Tipton  Counties,  introduced  a 
bill  which  had  for  its  purpose  some  changes  in  the  present  tax  law 
and  to  incorporate  therein  methods  designed  for  the  relief  of  cer- 
tain kinds  of  property  coming  under  the  general  classification  of 
"moneys  and  credits".  This  bill  was  withdrawn  under  the  opinion 
of  the  Attorney  General  that  it  was  in  contravention  of  certain 
provisions  of  our  present  Constitution.  Because  of  these  constitu- 
ional  provisions  it  is  equally  impossible  to  attempt  a  general  or 
even  a  considerable  revision  of  our  present  tax  laws  along  lines 
now  engaging  the  best  thought  upon  this  subject. 

No  more  important  consideration  will  occupy  the  attention  of 
such  a  convention  than  that  of  taxation,  for  upon  its  action  must 
rest  the  legislation  to  follow — a  situation  which  gives  to  your  con- 
ference a  special  and  serious  interest  to  every  taxpayer  in  Indiana. 
It  should  be  earnestly  desired  that  from  this  meeting  will  come  a 
careful  and  comprehensive  study  of  this  great  question  to  the  end 
that  our  State  will  be  given  a  taxing  system  as  nearly  perfect  in 
its  working  as  is  possible  to  construct  and  place  her  in  the  fore- 
front of  progress  in  this  important  problem  of  government. 

I  am  deeply  sensible  of  the  compliment  you  have  paid  me  by 
your  invitation  to  address  you  upon  this  occasion  and  I  am  keenly 
aware  of  my  limitations  in  discussing  the  subject  of  "Defects  of  the 
Present  System  and  Needed  Changes  in  the  Taxation  of  Money  and 
Credits".  If  I  can  contribute  a  thought  or  a  suggestion  of  value 
in  the  consideration  of  this  question  I  shall  deem  myself  fortunate. 
This  is  a  subject  too  broad  to  fully  discuss  in  the  scope  of  this 
paper  and  I  shall  not  attempt  to  do  more  than  speak  generally. 
It  will  be  the  purpose  to  address  these  remarks  to  money  on  hand 
or  on  deposit  and  to  the  various  forms  of  money  loaned  rather  than 
to  go  into  the  field  of  shares  of  stock  and  credits  of  similar  char- 
acter. 

In  speaking  of  the  defects  of  our  present  system  that  relate 
particularly  to  this  subject,  two  important  features  may  be  men- 
tioned— its  inequities  and  its  impracticabilities,  to  which  a  third 
might  be  added — its  questionable  policy. 

These  weaknesses  are  not  confined  solely  to  the  taxation  of  the 
class  \v«-  arr  especially  discussing,  but  in  varying  degrees  enter  and 
affect  other  kinds  of  property.  Nor  do  they  bear  an  equal  relation 
to  the  various  divisions  of  money  arid  credit.  With  an  allowance 
of  some  exemption,  lands  are  taxed  and  so  are  the  mortgages  there- 
on ;  yet  shares  of  stock  in  a  domestic  corporation  are  not  taxable 


TAXATION    IN    INDIANA  17 

to  the  owner  upon  the  theory  that  the  corporation  has  already  paid 
the  tax  upon  the  property  represented  and  that  it  is  sought  to  tax 
only  the  net  wealth.  This  appears  to  be  inequitable  as  between 
two  kinds  of  property  which  come  within  our  classification.  Many 
believe  the  present  law  in  relation  to  the  assessment  of  money  in 
bank  to  be  impracticable  yet,  for  the  same  reason  at  least,  such 
criticism  cannot  be  made  as  to  mortgages  of  record.  And  there 
arises  an  entirely  different  issue  in  considering  the  policy  of  the 
taxation  of  mortgages  and  credits  on  land  and  in  the  taxation  of 
corporate  stocks. 

In  pointing  out  the  inequities  affecting  our  subject  perhaps  the 
most  apparent  is  that,  taken  as  a  class,  it  is  by  far  the  highest  as- 
sessed. Under  the  theory  of  the  general  property  tax,  upon  which 
our  structure  stands,  all  property  is  to  contribute  an  equal  share. 
In  practice,  mortgages,  money  in  bank  or  on  hand,  and  generally  all 
money  loaned  in  whatever  form,  where  it  has  been  placed  upon 
the  tax  duplicate,  has  been  assessed  at  its  full  face  value.  With 
rare  exceptions  no  other  class  of  property  approaches  this  condi- 
tion. 

Compare,  if  you  will,  the  assessed  value  of  the  business  prop 
erty  in  any  of  our  cities  with  the  assessed  value  of  the  mortgage 
thereon,  and  also  with  the  value  fixed  by  the  appraiser  who  passed 
upon  the  property  at  the  time  the  loan  was  granted.  Find  what 
such  property  has  recently  sold  for  and  compare  the  value  as- 
sessed against  it  on  the  tax  duplicate.  Carry  this  further  and  look 
along  the  same  lines  of  investigation  as  to  farm  property  in  any 
of  the  improved  sections  of  Indiana. 

Lay  side  by  side  the  assessment  of  the  mortgage  loan,  the  note 
of  hand,  the  money  on  hand  or  in  bank  with  the  assessment  against 
the  stock  of  merchandise.  The  more  carefully  you  investigate  the 
more  apparent  will  be  the  discrepancy. 

Look  into  the  assessment  of  credits  as  compared  with  the  assess- 
ment of  personal  property  for  which  there  is  a  fixed  market  value. 

Investigate  the  difference  in  the  assessment  of  credits  with 
household  goods,  farm  implements  and  other  varieties  of  tangible 
personal  property. 

Look  at  the  valuation  of  railroad  and  kindred  property  for 
taxation  and  compare  with  these  items  of  credit; 

And  see,  too,  how  other  corporations  are  taxed  in  comparison. 
Even  our  banks,  that  complain  loudly,  have  a  very  liberal  discount 
upon  their  actual  value. 

2—848 


18  INDIANA    UNIVERSITY 

Any  investigation  along  these  lines  suggested,  or  others,  which 
has  for  its  purpose  the  ascertaining  of  the  facts  as  to  the  distri- 
bution of  the  burden  of  taxation  upon  the  various  kinds  of  prop- 
erty must  lead  to  the  conclusion  that  debt  secured  by  mortgage, 
notes  of  hand  and  other  forms  of  credits  for  money  loaned,  money 
on  hand  or  on  deposit,  when  placed  upon  the  duplicate,  are  assessed 
inequitably  higher  than  all  other  general  classes  of  property. 

Recently,  in  parts  of  the  State,  some  discount  has  been  given 
for  what  is  known  as  equalization,  and  this  practice  seems  to  be 
growing.  But  even  with  this  relief  the  assessment  is  very  dispro- 
portionate. 

Will  you  pardon  a  digression  to  speak  a  word  in  behalf  of 
the  home  owner? 

It  has  been  the  observation  of  your  speaker  that  this  is  a  sub- 
division of  landed  property  which  bears  far  more  than  its  just 
share  of  the  tax  burden.  That  this  is  especially  true  of  the  more 
modest  homes — say  up  to  the  value  of  $4,000.00.  Because  of  the 
growing  needs  of  the  city  and  town  governments  these  assess- 
ments have  been  gradually  forced  up  in  order  to  produce  the 
revenue  necessary  without  an  increase  in  the  rate  sufficient  to 
meet  the  necessities  existing  ait  the  time,  until  a  level  has  been 
reached  that  is  wholly  unfair  in  general  taxation  to  a  class  of  our 
citizens  that  it  is  the  manifest  policy  and  duty  of  the  country  to 
conserve  and  encourage. 

In  all  that  has  been  or  may  be  said  herein  concerning  the  assess- 
ment of  property  or  the  execution  of  the  taxing  laws  of  the  State 
no  reflection  is  intended  upon  the  officials  who  are  charged  with 
this  difficult  task  from  the  township  assessor  to  the  State  Tax 
Commissioner.  Having  personally  experienced  the  perplexing 
problems  that  are  the  constant  companions  of  these  officials,  I  feel 
that  they  should  be  encouraged  and  commended.  The  fact  that 
conditions  herein  referred  to  are  general  and  not  confined  to  a 
few  localities  would  seem  a  convincing  proof  of  the  weakness  of 
the  system  rather  than  the  fault  of  execution. 

Another  inequity  is  that  the  very  large  part  of  the  property 
classed  as  money  on  hand  or  in  bank,  commercial  paper,  notes 
secured  and  unsecured,  and  all  classes  of  secured  and  unsecured 
credits,  except  that  held  by  residents  of  Indiana,  escapes  taxation 
entirely.  As  an  illustration  a  debt  secured  by  mortgage  held 
by  a  resident  of  this  State  is  placed  upon  the  duplicate;  if,  how- 
ever, the  mortgagee  resides  out  of  the  State  it  is  not  assessed. 


TAXATION   IN   INDIANA  19 

One  of  the  features  of  our  present  system  that  seems  "imprac- 
tical" in  execution  is  the  assessment  of  money  in  bank. 

At  this  time  there  is  o>n  deposit  in  the  various  banking  institu 
tions  of  Indiana  approximately  $300,000,000.00.  Practically  the 
same  situation  existed  on  the  first  day  of  March,  1913.  The  total 
assessment  of  all  kinds  of  personal  property  in  the  State  on  that 
date  was  $487,298,675.00.  That  a  very  large  portion  of  the  amount 
on  deposit  escaped  the  assessor  at  that  time  is  obvious.  It  is  a 
matter  of  general  information  that  little  of  the  money  deposited 
in  banks  ever  gets  upon  the  tax  duplicate.  A  few  years  ago  there 
was  on  deposit  in  the  different  banks  of  one  of  our  smaller  cities 
an  amount  equal  to  one  half  of  the  total  assessed  value  of  the 
property  of  all  kinds — real  and  personal — within  its  corporate 
limits. 

That  money  in  bank  cannot  be  exposed  to  taxation,  under  our 
present  system,  without  the  most  serious  commercial  disturbances 
to  the  locality  where  the  attempt  is  made,  is  true.  One  of  the 
chief  functions  of  a  bank  is  to  absorb  the  idle  money  of  the 
community  into  what  is  known  as  deposits  and  place  it  in  activity 
by  way  of  loans.  The  very  large  percentage  of  the  loans  of  any 
banking  institution  is  made  out  of  the  money  of  its  depositors. 
So  these  two  accounts  are  inter-dependent  and  any  serious  shrink- 
age of  the  deposit  account  must  be  followed  by  a  similar  curtail- 
ment of  the  loans.  Therefore  the  banker,  of  necessity,  when  called 
upon  to  pay  an  exceptionally  large  or  major  portion  of  his  de- 
posits must  have  recourse  to  calling  in  his  loans  or  close  his  doors — 
the  disastrous  effects  of  either  course  on  the  community  is  not 
necessary  to  emphasize.  Should  the  assessor,  or  other  taxing 
officer,  inspect  the  books  of  the  bank  and,  as  in  the  case  of  public 
record,  take  therefrom  the  different  amounts  deposited  in  the 
names  of  those  liable  to  assessment,  the  effect  would  be  disastrous 
to  the  deposits  of  the  bank.  However  disagreeable  this  fact  may 
be  it  is,  nevertheless,  true  and  must  be  and  is  recognized  in  the 
practical  workings  of  our  taxing  system.  Very  recently,  in  one 
of  the  counties  of  the  State,  an  attempt  was  made  of  this  kind. 
The  immediately  threatened  result  was  so  alarming  that  the  inves- 
tigation was  suspended  at  once.  A  uniform  and  successful  effort 
by  taxing  officials  along  these  lines  throughout  Indiana  would 
close  the  doors  of  our  banks. 

Referring  to  the  unfairness  of  the  practical  exemption  of  the 
non-resident  money  leaner,  already  spoken  of,  it  may  be  observed 


20  INDIANA    UNIVERSITY 

that  this  has  resulted  in  the  removal  of  citizenship  of  a  considerable 
number  of  former  residents  having  large  amounts  of  money  to 
loan,  in  the  investment  by  others  in  non-taxable  securities,  and  by 
others  still  in  the  placing  of  their  money  outside  the  State,  and 
has  diverted  much  from  farm  and  commercial  loans  here.  It  has 
been  responsible,  too,  for  the  withdrawal  of  considerable  amounts 
formerly  loaned  by  way  of  mortgages  and  otherwise  commercially. 
The  recent  advance  in  the  rate  on  mortgage  loans,  and  particularly 
the  low  net  rate  in  non- taxable  securities,  may  be,  at  least,  par- 
tially accounted  for  by  this. 

Another  feature  of  the  operation  of  our  laws  upon  this  subject 
which  should  be  considered  in  relation  to  the  practical  working 
thereof  both  as  to  the  portion  of  the  income  value  of  this  class 
of  credits  taken  for  taxes  as  well  as  to  the  success  in  exposing  it 
for  taxation  is  the  amount  of  net  return,  after  deducting  taxes, 
from  moneys  bearing  interest. 

While  the  tendency  of  the  tax  rate  is  to  grow  everywhere  yet 
its  most  rapid  advance  is  in  the  city.  Both  because  of  economic 
and  social  reasons  the  majority  of  money  to  be  loaned  is  located 
and  subject  to  tax  therein.  Hence,  in  the  consideration  of  this 
phase  of  the  subject,  it  is  fair  to  speak  of  the  returns  to  the  holder 
of  the  loan  with  the  city  rate  as  the  basis.  In  many  of  the  cities 
of  this  State  the  rate  exceeds  two  and  one-half  percent  and,  in 
some  instances  as  much  as  four  and  five  percent.  This  is,  of  course 
the  total  rate  including  State,  county,  township  and  city.  It  is 
not  uncommon  to  find  the  rate  considerably  in  excess  of  three 
percent.  Assuming  tha.t  the  normal  rate  of  interest  is  six  percent, 
it  is  at  once  apparent  that  the  net  returns  to  the  holder  of  the 
paper  are  unattractive  in  view  of  what  they  would  be  in  other 
fields. 

Largely  for  this  reason  such  a  considerable  portion  of  this 
property  does  not  find  its  way  to  the  tax  duplicate.  And  it  would 
seem  manifest  that  if  it  was  assessed  either  the  rate  of  interest 
must  advance  or  money  to  loan  in  the  hands  of  individual  citizens 
of  Indiana  would  disappear  from  the  State.  This  would  be  true 
of  all  forms  whether  notes,  bonds  or  other  evidences  of  debt.  And, 
it  may  be  observed,  that  in  practice,  money  on  hand  or  on  deposit 
and  money  loaned,  so  far  as  Indiana  capital  is  concerned,  would 
be  seriously  affected,  which  would  find  its  reflective  influence  in 
business  of  every  character. 

It  would  seem  obvious  that  the  policy  contemplated  by  our 
ont  system  followed  literally  would  be  subversive  of  the  best 


TAXATION   IN    INDIANA  21 

interests  commercially  of  both  the  farmer  and  the  business  man. 
And,  in  view  of  the  policy  of  other  States  of  rather  recent  adop- 
tion this  phase  of  this  subject  merits  serious  consideration. 

One  of  the  subjects  that  is  now  meeting  consideration  as  a 
problem  of  government  is  the  question  of  interest  rates,  especially 
as  to  farm  loans.  Next  to  taxes  the  burden  of  interest  has  been 
fundamentally  a  load  upon  economic  progress.  A  distinguished 
former  Governor  of  the  State  of  New  York  once  said  that  the  com- 
mercial condition  of  the  country  could  be  accurately  ascertained 
by  the  prevailing  rates  of  interest.  It  is  accepted  that  a  low  rate 
of  interest  makes  for  better  times  and  substantial  progress.  The 
development  of  the  Credit  Foncier  in  France  and  institutions 
having  a  like  purpose  elsewhere  in  Europe  has  attracted  wide 
attention  as  providing  a  lower  rate  for  farmers.  President  "Wil- 
son is  now  -engaged  in  the  consideration  of  a  measure  for  a  similar 
relief  in  this  Country.  As  a  result  of  Congressional  interest  the 
distinguished  Congressman  from  the  Fifth  Congressional  district, 
with  others,  has  given  much  time  and  effort  in  the  investigation 
and  study  of  this  subject.  In  view  of  this  situation,  in  view  of 
the  taxing  policy  of  many  States,  in  view  of  the  much  lower  rates 
of  interest  prevailing  upon  non-taxable  credits,  in  view  of  the 
discrimination  against  the  Indiana  loaner,  and  in  view  of  the 
limited  proportion  of  this  property  upon  the  tax  duplicate  this 
phase  of  our  taxing  law  must  be  given  some  consideration  soon. 

And,  in  this  connection,  it  must  be  borne  in  mind  that  not  the 
least  unfairness  in  the  working  of  our  present  system  is  the  fact 
that  such  a  large  amount  of  this  property  is  not  taxed.  Under 
the  theory  of  the  general  property  tax  it  should,  in  justice  to  other 
classes,  bear  its  fair  share  of  the  support  of  government.  That 
other  property  is  thus  unduly  burdened  is  manifest  and  while 
this  seems  to  come,  to  a  considerable  extent,  from  causes  mentioned, 
this  does  not  constitute  a  sufficient  reason  why  such  exemption 
should  exist.  It  should  be  the  purpose  to  correct  the  inequity 
from  both  standpoints. 

The  burden  of  taxation  has  been  unpopular  in  all  ages — the 
complaints  loud  and  numerous.  They  have  taken  the  form  of 
protest  from  the  mild  complaint  of  the  citizens  to  the  disasters  of 
war.  The  hatred  of  the  Roman  publican  and  the  ''Boston  Tea 
Party"  are  notable  examples  of  the  past.  The  pages  of  history 
of  all  ages  contain  the  records  of  the  displeasures  of  the  people. 

That  taxes  have  been  increasing  during  the  past  few  years,  very 
rapidly,  is  well  known  and  that  there  will  be  further  and  heavy 


22  INDIANA   UNIVERSITY 

additions  to  this  is  beyond  the  possibility  of  dispute.  We  cannot 
close  our  eyes  to  the  increasing  problem  of  the  distribution  of  the 
burden  of  raising  the  revenue  necessary  for  the  support  of  govern- 
ment. 

In  a  recent  utterance  Mr.  James  J.  Hill  said:  "In  a  study  of 
credits  made  some  time  ago,  I  showed  that  the  net  ordinary  ex- 
penses of  the  United  States  Government  had  increased  1.4  per 
cent,  between  1870  and  1890;  and  121.4  per  cent,  between  1890 
and  1908 ;  while  between  1890  and  1909  the  expenditures  of  the 
thirty  states  from  which  reliable  reports  could  be  obtained  had 
increased  201.6  per  cent.  Most  of  our  cities  are  mad  spenders, 
intent  only  on  securing  an  increased  margin  for  bond  issues  by 
raising  the  assessed  valuation." 

This  statement  of  Mr.  Hill  was  made  in  reference  to  the  mat- 
ter of  the  is'suance  and  value  of  bonds,  but  it  reflects  directly  the 
necessity  of  providing  increased  taxes  to  meet  these  expenditures. 
And  it,  incidentally,  discloses  another  reason  which  has  been 
coupled  with  the  demand  for  a  greater  tax  revenue  in  bringing 
about  such  a  large  advance  in  cities  in  the  assessed  value  of  prop- 
erty— particularly  real  estate. 

And  it  may  be  stated  in  passing  that  the  popular  .impression 
that  the  increase  of  the  assessment  will  proportionately  lower  the 
tax  rate  is  a  fallacy  in  practice.  The  demands  for  public  expendi- 
tures are  so  pressing  and  urgent  that  the  permanent — even  pass- 
ing— decrease  in  the  levy  is  not  secured.  All  administrative  offi- 
cers, particularly  those  of  state  and  city  governments,  are  con- 
stantly beset  and  perplexed  in  meeting  the  expenses  of  just  and 
equitable  measures  urgently  demanded.  They  are  continually  be- 
tween the  fires  of  the  requirements  of  the  taxpayer  for  public 
improvments,  new  departments,  extension  of  existing  service,  and 
the  increasing  necessities  of  our  complex  social  and  economic  con- 
dition and  confronted  by  the  same  taxpayer  with  a  demand  for 
lower  taxes.  May  it  be  added  that  our  people  have  been  too  busy 
to  give  serious  attention  to  these  problems  except  to  indulge  in  a 
more  or  less  violent  protest  at  the  time  of  paying  their  taxes  or 
when  going  over  their  business  affairs. 

Perhaps  the  rapid  increase  in  the  expense  of  the  Federal  Gov- 
ernment, as  well  as  the  disposition  of  our  people  to  give  little  heed, 
may  be  illustrated  by  recalling  that  only  a  few  years  ago  the  coun- 
try was  startled  by  the  announcement  of  the  newspapers  of  what 
was  then  termed  "The  Billion  Dollar  Congress";  this  amount  has 
been  exceeded  since  but  we  have  come  to  think  little  of  it. 


TAXATION   IN   INDIANA  23 

That  the  demands  upon  the  government  at  Washington  are 
rapidly  increasing  is  beyond  question  and  evidenced  by  the  con- 
stant effort  to  provide  revenue  to  avoid  a  deficit. 

The  situation  of  our  National  Government  is  relatively  re- 
flected in  the  state  and  every  administration  has  the  same  expe- 
rience. Each  session  of  the  Legislature  is  beset  with  demands 
that  must  occasion  the  raising  of  additional  revenue  if  relief  is 
granted.  The  necessarily  increasing  demand  upon  the  depart- 
ments and  institutions  of  Indiana,  alone,  form  a  serious  problem 
in  taxation. 

The  requirements  of  our  cities  are  even  proportionately  greater 
both  at  present  and  in  prospect.  No  branch  of  our  government 
gives  more  pause  or  produces  greater  anxiety  for  the  future.  Many 
grave  questions  confront  this  department  and  nowhere  are  there 
more  pressing  and  insistent  problems  to  solve. 

So,  too,  do  our  county,  town,  and  township  subdivisions  meet 
these  same  questions  in  no  small  measure. 

The  nation-wide  agitation  of  the  "good  roads"  question,  the 
urgency  of  the  public  demand  for  their  construction,  and  their 
economic  value  is  of  common  information.  The  carrying  of  this 
into  effect,  and  few  will  doubt  its  probability,  will  require  millions 
of  money  which  must  be  paid  out  of  revenues  to  be  raised  and 
provided  by  the  nation,  the  state  and  by  all  the  political  sub- 
divisions. 

The  constantly  increasing  need  for  the  extension  of  the  univer- 
sity, the  high  school  and  the  common  school  has  been  and  will 
continue  to  be  a  large  and  growing  demand.  That  the  progress 
of  our  country  as  a  whole,  as  well  as  its  smaller  units,  is  largely 
dependent  upon  our  educational  advantages  will  admit  of  no  argu- 
ment. That  our  present  system  must  be  constantly  broadened  to 
meet  the  requirements  of  a  rapidly  increasing  population  and  the 
demands  for  individual  equipment  is  not  open  to  question.  The 
aid  given  by  the  state  to  your  splendid  institution  has  been  largely 
increased  during  the  past  few  years.  Is  there  a  thinking  tax 
payer  in  Indiana  who  would  have  limited  the  work  of  your  uni- 
versity ? 

The  necessity  for  the  proper  supervision  of  the  public  health 
is  fundamental.  The  recent  successful  advance  in  that  direction 
means  that  much  additional  must  be  accomplished.  No  depart- 
ment of  government  is  more  necessary  to  the  welfare  of  the  citi- 
zen. The  passing  insistence  that  more  attention  be  given  to  this 


24  INDIANA   UNIVERSITY 

branch  of  the  public  service  confronts  us  from  the  Federal  Gov- 
ernment to  the  township. 

Particular  attention  might  be  directed  to  many  other  phases 
of  this  onward  movement.  The  force  behind  the  demand  for  pub- 
lic improvements  of  all  kinds  and  the  enlarging  of  all  public  serv- 
ice is- so  insistent  and  irresistible  that  it  must  be  heeded.  The 
rapidly  increasing  growth  of  population  and  wealth  is  constantly 
producing  new  requirements;  the  complexity  of  the  problems 
arising  from  our  social  and  economic  situation  seeking  more  from 
the  administration  of  government.  When  this  country  was  new 
and  the  population  sparse,  conditions  were  simple  and  taxes  low. 
As  people  advanced  and  became  more  numerous  the  levy  increased 
correspondingly.  That  the  advance  in  the  rate  and  the  amount 
of  taxation  was  the  result  of  this  principle  seems  obvious.  Can 
it  be  doubted,  therefore,  that  we  may  look  with  certainty  for 
further  increase? 

In  the  attempt  to  limit  the  advance  of  taxes  changes  will  be 
made  especially  in  the  cost  of  administration.  Much  of  our  pres- 
ent system  is  cumbersome  and  expensive.  As  expressed  in  the 
business  world  " cutting  down  the  overhead"  will  be  a  necessity. 
The  consolidation  of  departments  and  the  reformation  of  methods 
will  be  accomplished  with  the  consequent  elimination  of  salary 
and  other  expenses.  These  are  business  methods  which  must  find 
recognition  in  our  governmental  affairs.  All  this  will  be  reformed 
in  the  near  future ;  and  while  it  will  aid  yet  retrenchment  cannot 
keep  pace  with  the  irresistible  trend  toward  progress. 

Credit  is  the  life  blood  of  commerce  and  necessary  to  the  de- 
velopment of  wealth.  Any  limitation  thereof  is  accompanied  by 
a  result  more  or  less  disastrous.  The  effect  of  the  curtailment 
of  the  credit  of  the  individual  limits  his  sphere  and  its  withdrawal 
brings  ruin.  In  its  larger  application  it  works  similarly.  The 
chief  apparent  cause  of  our  panics  is  the  withdrawal  of  credit, 
whatever  underlying  reason  occasioned  it.  The  much  talked  of 
"loss  of  confidence"  is  but  another  expression  for  loss  of  credit. 

So  all  the  inequitable  burdens  placed  upon  forms  of  credit  will 
certainly  be  reflected,  in  greater  or  less  measure,  along  these  lines. 

The  attempt  has  been  made  to  show  herein  the  unequal  taxation 
laid  upon  this  class  of  property  as  well  as  its  growing  inability 
to  meet  it,  and  to  call  the  attention  of  the  borrowing  classes  to  the 
advantage  of  relief  in  this  direction.  That  such  a  benefit  would 
necessarily  follow  is  demonstrated  by  the  present  existing  rates 


TAXATION   IN   INDIANA  25 

on  mortgage  and  other  security  and  that  on  non-taxables.  A  good 
non-taxable  Indiana  bond  is  selling  now  to  net  the  holder  about 
3.80  per  cent,  while  the  farmer  is  paying  for  money  loaned  on 
mortgage  (including  commission)  about  6  per  cent,  for  standard 
loans.  Because  of  excessive  tax  another  security  is  appearing 
prominently  in  the  market — preferred  stock.  This  has  been  per- 
fected until  former  objections  have  been  largely  eliminated,  and 
because,  under  our  statute,  it  is  not  taxable  in  the  hands  of  the 
holder,  if  issued  by  an  Indiana  company,  it  is  now  finding  ready 
sale.  In  this  connection  will  you  pardon  a  further  illustration 
showing  both  the  excessive  tax  levy  as  well  as  the  practical  opera- 
tion of  the  weight  of  assessment  on  credits? 

A  number  of  years  ago  a  German  farmer  settled  upon  a  tract 
of  land  near  my  native  city,  and  by  dint  of  thrift  and  industry 
came  to  own  the  farm  free  of  incumbrance.  After  giving  most 
of  a  lifetime  to  this  occupation  he  desired  to  spend  his  remaining 
days  in  the  easier  life  of  retirement  in  the  city.  He  sold  the  farm 
taking  a  mortgage  for  most  of  the  purchase  money  and  moved  to 
town  confidently  believing  that  his  modest  requirements  would  be 
fully  provided  by  the  interest  arising  from  the  money  derived 
from  the  sale  of  his  land.  In  due  season  he  reported  his  loans 
to  the  assessor.  Then  came  the  tax  gatherer  and  with  him  departed 
the  dream  of  ease  and  comfort  in  his  old  days,  for  our  friend 
discovered  that  in  place  of  the  income  he  so  confidently  relied  upon 
he  actually  had  left  less  than  forty  cents  out  of  each  dollar — or 
instead  of  having  $600  he  had  but  $280.  Whereas  he  had  been 
paying  approximately  $70  in  taxes  on  the  farm  they  suddenly 
arose  in  the  city  upon  the  same  capital  to  $435  or  more  than  six 
times  as  much. 

A  friend  recently  told  me  of  a  gentleman  who,  a  number  of 
years  ago,  lived  in  a  certain  city  in  Indiana.  He  possessed  $5,000. 
His  needs  were  simple  and  he  lived  on  the  income  derived  from 
loaning  this  sum  which  netted  him  $325  per  annum  after  deduct- 
ing taxes.  Today  the  same  sum  under  the  present  tax  rate  in 
that  city  and  loaned  at  the  same  rate  would  bring  but  $208  net. 
Or  it  would  require  $8,000  now — or  60  per  cent,  more  to  produce 
the  original  income,  the  tax  rate  having  advanced  from  $1.50  to 
$3.84.  If  we  were  to  further  take  into  account  the  reduction  of 
the  interest  rate  from  8  per  cent,  to  6  per  cent,  it  would  earn  but 
$108  now;  or  it  would  take  more  than  $15,000  to  reproduce  the 
initial  net  return. 


26  INDIANA    UNIVERSITY 

If  we  are  to  expect  a  further  material  advance  in  the  rate  of 
taxation  does  it  not  follow  that  if  the  present  method  of  the  assess- 
ment of  this  class  of  property  is  adhered  to  and  enforced  it  will 
soon  amount  to  confiscation  of  its  income  value  ?  That  this  advance 
to  that  figure  will  soon  be  realized  there  is  little  doubt  for  there 
are  already  instances  in  Indiana  where  the  total  of  state,  county, 
city  and  township  tax  approximates  5  per  cent.  It  will  inevitably 
mean  one  of  three  things : — That  it  must  seek  other  lines  of  invest- 
ment; that  it  must  leave  the  state;  or  that  it  must  be  sequestered 
from  the  taxing  authorities. 

The  action  of  other  states  must,  too,  force  upon  us  some  con- 
sideration as  to  changes  in  our  present  system.  Many  are  awaken- 
ing to  the  situation  and  in  a  number  definite  steps  have  already 
been  taken.  The  effect  must  follow  that  if  we  do  not  offer  similar 
advantages  Indiana  capital,  seeking  this  kind  of  investment,  will 
flow  into  those  states  where  conditions  are  favorable.  - 

In  the  consideration  of  ''needed  changes"  in  our  taxing  laws 
relating  to  the  branch  discussed  in  this  paper  it  manifestly  involves 
too  large  a  field  to  be  covered  at  this  time.  Nor  will  it  be  the  pur- 
pose to  point  out  specifically  a  particular  method,  but  rather  to 
suggest,  in  a  general  way,  some  principles  of  taxation,  what  some 
other  states  have  done,  and,  very  briefly,  some  tendencies  abroad. 

Professor  Seligman  in  his  valuable  Essays  on  Taxation,  says : 
"To  arrange  a  system  of  taxation  which  shall,  on  the  whole,  cor- 
respond as  closely  as  possible  to  the  net  revenues  of  the  individuals 
and  social  classes,  and  which  shall  take  into  account  the  variations 
in  tax  paying  ability,  has  become  the  demand  of  modern  civiliza- 
tion. But  unless  this  system  is  in  harmony  with  the  external  struc- 
ture and  the  internal  conditions  of  modern  economic  life,  it  is 
foredoomed  to  failure. ' ' 

Professor  Bullock,  of  Harvard  University,  lays  down  this  rule : 
"The  methods  and  rates  of  taxation  must  be  adjusted  to  the  re- 
quirements of  the  various  classes  of  taxable  objects;  no  rate  upon 
any  class  should  be  higher  than  can  be  collected  with  reasonable 
certainty ;  no  rate  should  be  so  high  as  to  drive  out  of  a  community 
persons,  or  capital,  or  industries,  and  any  rate  that  exceeds  what 
a  class  of  taxable  objects  will  bear  must  result  in  loss  of  revenue, 
injury  to  industry,  and  such  general  demoralization  as  accompanies 
widespread  evasion  of  law." 

While  there  exists  a  number  of  forms  of  special  tax,  there  may 
be  said  to  be  three  theories  of  general  taxation,  namely:  the 
General  Property  Tax;  the  Income  Tax;  and  the  Single  Tax. 


TAXATION    IN    INDIANA  27 

The  underlying  principle  of  the  general  property  tax  is  that 
all  kinds  of  property  must  be  equally  and  directly  subjected  to 
the  raising  of  the  revenue  necessary  for  the  maintenance  of  the 
government.  While  it  is  usually  conceded  that  if  properly  apr 
plied  and  administered  it  is  a  fair  and  just  system  yet  it  has  been 
frequently  attacked  as  not  suitable  as  a  taxing  basis  for  our  modern 
conditions.  Like  the  theory  of  our  land  titles  it  found  its  origin 
in  the  Feudal  System. 

The  Income  Tax,  as  its  name  implies,  contemplates  the  assess- 
ment of  individuals  upon  their  ability  to  pay  as  the  standard  of 
obligation  to  the  state  and  is  more  modern. 

Professor  Seligman  points  out  that  "every  civilized  community 
professes  to  tax  the  individual  according  to  his  ability  to  pay, 
which  may,  indeed,  be  measured  by  his  property,  or  by  any  other 
standard."  Then  asks  "But  is  property  the  true  test  of  ability?" 
He  and  others  who  lean  to  the  income  tax  theory  point  to  this 
method  as  the  fairer  and  the  more  just  distribution  of  the  expense 
of  government  as  a  basis  for  a  taxing  system,  calling  attention  to 
the  productive  value  of  different  kinds  of  property,  the  variance 
in  the  income  of  the  same  property  in  the  hands  of  different  indi- 
viduals, the  duty  to  the  State  of  him  who  earns  a  salary  and  similar 
illustrations. 

The  general  theory  of  the  Single  Tax  is  a  tax  exclusively  upon 
land.  It  is  urged  upon  the  ground  that  land  is  naturally  and  of 
right  should  be  the  property  of  the  whole  people  and  that,  there- 
fore, there  can  be  no  individual  property  in  land ;  that  its  increase 
in  value  is  mainly  the  result  of  social  conditions  and  not  due  to 
individual  effort;  that  this  value  is  the  "unearned  increment" 
that  is  due  to  society.  Henry  George,  who  was  one  of  its  most 
distinguished  advocates,  adroitly  applied  it  to  the  solution  of  the 
land  troubles  in  Ireland.  It  is,  in  a  measure,  in  operation  in 
parts  of  the  Dominion  of  Canada.  It  is  attractive  in  theory  but 
it  would  seem  impossible  to  practice  in  this  country. 

It  is  not  the  purpose  of  this  paper  to  discuss  either  of  the  fore- 
going, but  simply  to  suggest  them  in  view  of  what  has  been  done 
in  this  country  and  abroad. 

The  various  states,  with  the  exception  of  Wisconsin,  hold  to 
the  general  property  tax  idea  as  a  basis.  Wisconsin  has  rather 
recently  adopted  the  income  tax  theory  supplemented  with  special 
and  direct  taxation.  However,  in  practice  and  by  law  other  states 
have  some  elements  of  the  income  principle.  For  instance  in 


28  INDIANA    UNIVERSITY 

Indiana  the  method  of  the  valuation  of  railroad  property  is  prin- 
cipally based  upon  the  value  produced  by  a  capitalization  of  their 
income  account.  This  is  the  usual  reason  for  the  variation  of 
these  assessments  from  year  to  year.  And  this  is  used  too,  in  the 
assessment  of  other  kinds  of  property  in  this  state. 

Wisconsin  is  the  first  and  to  this  time  the  only  state  in  the 
Union  which  has  successfully  adopted  the  general  principle  of 
the  Income  Tax  into  its  system,  and  while  there  are  other  specific 
taxes  direct  in  their  nature,  yet,  so  far  as  stocks  (except  bank 
stocks)  bonds,  notes  and  other  credits  are  concerned,  they  bear 
no  direct  assessment  but  the  income  derived  from  these  is  taxed 
against  the  holder  of  the  paper.  Under  this  law  many  of  the  diffi- 
culties existing  here  relating  to  the  taxing  of  this  property  are 
obviated.  In  some  of  the  other  states,  such  as  North  and  South 
('.n-olina,  Oklahoma,  and  Tennessee  elements  of  the  income  tax 
principle  enter,  to  some  extent,  into  their  provisions. 

In  the  state  of  Rhode  Island,  by  an  act  passed  in  1912,  very 
radical  changes  were  made.  This  is  particularly  true  of  the  class 
of  property  under  discussion.  By  the  provisions  of  their  new 
statute  all  intangible  property  is  taxed  at  forty  cents  upon  each 
$100.00  of  valuation.  In  addition  all  savings  deposits  are  relieved 
from  local  tax.  The  report  of  the  Board  of  State  Tax  Com- 
missioners for  1913,  after  referring  to  the  fact  that  many  of  the 
assessments  were  made  within  a  very  short  time  after  the  law 
went  into  effect,  adds:  "From  the  standpoint  of  revenue  received 
for  both  local  and  state  purposes,  the  operation  of  these  provisions 
of  law  has  apparently  resulted  in  a  very  substantial  increase  over 
the  receipts  of  previous  years.  The  flat  rate  of  forty  cents  on 
each  $100.00  of  valuation  has  resulted  in  a  more  equitable  distri- 
bution of  the  tax  imposed  on  the  tangibles  and  has  added  no 
new  difficulties  to  local  assessment.  It  is  the  opinion  of  the  Board 
of  Tax  Commissioners  that  this  provision  of  the  law  has  adequately 
fulfilled  its  purpose." 

The  theory  of  taxing  credits  at  a  low  fixed  rate  has  been  fol- 
lowed in  part  by  Iowa  and  Minnesota. 

The  state  of  Ohio,  by  recent  enactment,  is  trying  a  very  inter- 
esting experiment.  All  property  is  assessed  there  at  its  full  value, 
but  the  amount  of  the  total  levy  for  all  purposes,  state  and  local, 
is  limited  to  one  percent.  This  is  a  departure  and  the  working 
and  success  of  this  law  is  being  carefully  watched  and  is  attract- 
ing wide  attention. 


TAXATION    IN    INDIANA  29 

The  Secured  Debt  Law  of  the  state  of  New  York  is  frequently 
referred  to.  It  is  provided  that  any  bond,  note,  or  debt  secured 
by  mortgage  on  real  estate  recorded  anywhere  except  in  New  York 
is  exempt  upon  paying  a  stamp  tax  of  one  half  of  one  percent. 
Debts  secured  by  mortgage  upon  real  estate  situated  in  New  York 
are  exempt  if  made  or  recorded  after  July  1st,  1906,  or  if  mort- 
gage tax  of  one  half  of  one  percent,  on  the  amount  remaining  due 
since  July  1st,  1906,  has  been  paid.  There  is  a  special  recording 
tax  against  mortgages  since  1906  of  fifty  cents  upon  each  $100.00 
or  major -fraction  thereof. 

Time  will  not  permit  the  pointing  out  of  the  different  provisions 
of  the  several  states  but  they  may  be  summed  up  from  data  secured 
from  the  recent  publication  * '  Tax  Exempt  and  Taxable  Investment 
Securities"  by  "Wrightington  and  Rollins. 

Building  and  Loan  Association  shares  and  shares  in  co-opera- 
tive banks  are  taxed  at  a  low  fixed  rate  in  Rhode  Island.  In  Mary- 
land, Nevada,  Utah  and  Vermont  they  are  exempt  if  the  property  of 
the  association  is  in  the  state ;  and  exempt  in  California,  Connecti- 
cut, Delaware,  District  of  Columbia,  Georgia,  Idaho,  Maine,  Massa- 
chusetts, Minnesota,  New  Hampshire,  New  Jersey,  New  York,  North 
Carolina,  Oklahoma,  South  Carolina,  Tennessee,  Virginia,  "Wash- 
ington and  Wyoming. 

Bonds  of  the  United  States  are  exempt  in  all  states  and  bonds 
of  state,  county,  and  city  governments  are  rapidly  becoming  so 
throughout  the  country.  In  some  states  these  securities  of  other 
states  are  also  exempt. 

Bonds  of  private  corporations  are  exempt  in  Delaware,  District 
of  Columbia  and  Washington;  taxed  at  a  low  fixed  rate  in 
Iowa,  Maryland,  Pennsylvania,  and  Rhode  Island;  exempt  on 
payment  of  a  license  tax  in  Minnesota  and  New  York.  Certain 
kinds  are  not  liable  for  taxes  in  California,  Colorado,  Massachu- 
setts, New  Jersey,  Rhode  Island  and  Wyoming. 

Commercial  paper  is  taxed  at  a  low  fixed  rate  in  Iowa,  Min- 
nesota, and  Rhode  Island,  and  exempt  in  Delaware,  District  of 
Columbia  and  Washington.  Certain  notes  are  exempt  in  New 
Jersey  and  Pennsylvania. 

Notes  secured  by  mortgage  on  real  estate  located  in  the  state 
levying  the  tax  are  exempt  in  California,  Colorado,  Connecticut, 
Delaware,  District  of  Columbia,  Idaho,  Louisana,  Maine,  Massa- 
chusetts, New  Jersey,  Utah,  Washington  and  Wyoming.  They 
bear  a  low  fixed  rate  in  Iowa  and  Rhode  Island ;  are  liable  only  for 


30  INDIANA   UNIVERSITY 

a  license  or  special  tax  in  Alabama,  Michigan,  Minnesota,  and  New 
York.  In  New  Hampshire  when  secured  by  local  real  estate  and 
bearing  a  rate  of  interest  not  greater  than  5  per  cent,  they  are 
exempt. 

Notes  secured  by  mortgage  on  real  estate  located  out  of  the 
state  levying  the  tax  are  exempt  in  California,  Delaware,  District 
of  Columbia,  Idaho,  Utah  and  Washington.  They  bear  a  low 
rate  in  Iowa,  Maryland,  Minnesota  and  Rhode  Island,  and  are 
exempt  on  payment  of  a  license  fee  in  New  York. 

Deposits  in  banks  located  in  the  state  levying  the  tax  are  exempt 
in  Alabama,  Delaware,  District  of  Columbia,  Maryland,  Washing- 
ton and  Wisconsin.  Taxable  at  a  low  fixed  rate  in  Iowa,  Minne- 
sota, and  Rhode  Island.  In  Pennsylvania  all  bank  deposits  bear- 
ing interest  are  taxable — -those  subject  to  check  are  exempt.  In 
California,  New  York  and  New  Jersey  savings  bank  deposits  are 
exempt.  In  Connecticut  deposits  in  savings  banks  are  also  exempt, 
together  with  some  further  exemption  on  deposits  in  state  banks 
and  trust  companies.  The  situation  in  Massachusetts  is  quite  simi- 
lar to  Connecticut. 

Deposits  in  banks  located  outside  the  state  levying  the  tax  are 
exempt  in  Alabama,  Delaware,  District  of  Columbia,  Maryland, 
Washington  and  Wisconsin  and  taxed  at  a  low  fixed  rate  in  Iowa, 
Minnesota,  and  Rhode  Island. 

From  the  foregoing  summary  it  is  evident  that  many  states 
are  recognizing  the  necessities  of  change  in  the  older  methods  and 
are  endeavoring  to  find  a  solution  to  this  vexing  problem.  It  also 
clearly  shows  that  while  Wisconsin  has  made  a  departure  the  ten- 
dency in  the  United  States  leans  very  strongly  to  the  general 
property  tax. 

In  many  instances  abroad,  however,  the  reverse  seems  to  be  the 
rule.  And  in  considering  very  briefly  what  has  been  done  in  some 
other  countries  the  great  difference  in  their  form  of  government 
must  be  given  consideration. 

England  was  the  first  important  country  to  introduce  the  in- 
come tax.  While  she  still  retains  a  direct  tax  on  lands  and  forms 
of  personal  property,  the  basic  principle  is  the  income.  There, 
also,  the  inheritance  tax  has  a  very  wide  scope  and  a  large  part 
of  her  revenue  comes  from  this  source.  She  also  has  other  special 
taxes  and  has  a  form  of  progression  in  taxation  largely  applied 
to  the  tax  on  estates,  the  rate  increasing  with  the  value  of  the  prop- 
erty. This  principle  of  progression  in  taxation  has  been  adopted 
by  the  United  States  government  in  the  income  tax  recently  passed. 


TAXATION    IN    INDIANA 


31 


In  New  Zealand  the  general  property  tax  has  been  largely 
abandoned  and  the  income  tax  substituted  therefor.  That  gov- 
ernment had  also  adopted  a  system  of  graduation.  While  a  tax 
on  land  is  still  maintained  improvements  upon  land  are  exempted. 

The  taxing  system  of  the  Netherlands,  while  greatly  reformed, 
is  quite  complicated  still.  Very  decided  changes  have  been  made 
and  while  direct  taxes  have  not  altogether  been  abandoned  they 
have  been  reduced  and  the  operation  of  the  income  principle 
greatly  enlarged.  Their  direct  taxes  are  both  in  the  form  of  land 
tax  and  excise  duties.  There,  also,  is  some  application  of  the  idea 
of  graduation  in  taxation. 

The  history  of  the  progress  of  taxation  in  Prussia  has  a  special 
interest  to  this  country  as  it  is  more  nearly  related  to  our  situation 
from  the  similar  elements  in  the  forms  of  government  in  that  their 
Confederation  creates  some  of  the  same  problems  as  those  existing 
between  our  Federal  and  State  governments.  There  they  have 
fairly  succeeded  in  bringing  into  successful  operation  the  segre- 
gation of  sources  of  revenue  between  local  and  state  taxes,  and,  in 
so  doing,  they  have  retained  the  direct  property  tax  as  well  as  the 
income  theory — the  direct  tax  being  principally  exercised  locally 
while  the  income  tax  is  imposed  by  the  general  government. 

The  investigation  of  what  has  been  accomplished  in  taxation 
in  all  its  various  forms  in  these  and  other  countries  is  very  inter- 
esting and  instructive  but  time  will  not  permit  of  further  mention. 
They  are  alluded  to  in  this  paper  in  a  very  superficial  way  only 
for  the  purpose  of  indicating  the  seeming  trend  elsewhere  of  reme- 
dies for  the  tax  burden.  A  complete  investigation  of  the  tax 
laws  abroad,  as  well  as  in  the  United  States,  is  necessary  before 
an  accurate  understanding  of  just  what  has  been  done  can  be 
had,  and  it  would  be  a  great  advantage  in  framing  suggestions 
for  changes  in  our  present  laws  relating  not  only  to  the  subject 
in  hand  but  to  the  relief  of  all  classes  of  tax  duties  to  include  as 
comprehensive  a  field  as  possible.  No  problem  of  government  is 
more  complex  or  difficult  nor  has  any  occasioned  the  infliction  of 
more  wrongs. 

It  is  not  the  purpose  of  this  discussion  to  lend  the  impression, 
nor  is  it  contended  herein,  that  the  class  which  has  been  the  partic- 
ular subject  of  this  paper  is  the  only  property  demanding  relief, 
or  that  it  alone  bears  a  disproportionate  share  of  the  burden  of 
taxation.  Inequities  exist  in  the  relation  of  other  kinds  as  well. 
It  has,  rather,  been  the  effort  to  confine  this  paper  as  closely  as 
possible  to  the  presentation  of  the  particular  status  of  money  and 


32  INDIANA    UNIVERSITY 

credits,  freely  admitting  that  when  this  is  relieved  of  necessity 
general  adjustment  should  be  made  in  the  relation  of  other  classes 
of  property  and  duties  in  a  new  and  better  taxing  system.  Its 
readjustment,  in  many  particulars,  is  of  great  importance  from  the 
standpoint  of  commercial,  economic,  and  governmental  necessities. 
That  our  present  system  is  inefficient  in  many  ways  and  does  not 
meet  the  requirements  of  the  present  time  seems  true;  that  some 
consideration  must  be  given  soon  appears  obvious  from  the  force 
of  changes  going  on  about  us.  That  the  first  step  in  the  accom- 
plishment of  material  change  and  advancement  must  be  made  in 
our  constitution  is  clear  and  that  this  opportunity  is  near  at  hand 
is-  very  probable. 

If  your  conference  will  mark  the  beginning  of  organized  and 
intelligent  study  of  this  great 'and  vitally  important  subject  it  will 
become  the  means  of  securing  to  our  people  a  fundamental  step  in 
their  material  advancement — a  service  second  in  importance  to 
none.  And  it  is  to  be  sincerely  hoped  that  amid  your  numerous 
other  duties  in  the  education  of  this  great  state  that  you  may  find 
time  to  give  to  this  purpose  the  force  and  energy  necessary  for  the 
full  accomplishment  of  this  important  object. 

And  in  conclusion  it  must  be  admitted  that  a  considerable  por- 
tion of  the  class  of  money  and  credits  which  have  been  especially 
discussed  herein  now  escape  taxation,  but  if  it  is  to  "  render  unto 
Caesar  the  things  which  are  Ceasar's"  a  more  practical  and  equit- 
able system  must  be  devised.  (Applause.) 

DISCUSSION 

CHAIRMAN  STOLL:  Gentlemen,  after  listening  attentively  to 
the  admirable  address  of  Mr.  Sims  I  feel  quite  assured  that  you 
will  be  delighted  to  hear  from  that  other  student,  Mr.  J.  P.  Dunn 
of  Indianapolis. 

MR.  DUNN  :  Mr.  President,  gentlemen  and  ladies — When  I 
accepted  this  invitation  I  had  intended  at  first  to  make  an  off-hand 
discussion  of  what  was  presented  here.  As  I  thought  over  it  more, 
I  became  impressed  with  the  idea  that  here  might  be  an  opportunity 
for  doing  some  real  good  in  the  improvement  of  Indiana's  tax 
system;  and  I  want  to  say  that  I  agree  most  fully  with  what  has 
been  said  by  the  two  preceding  speakers  as  to  the  deplorable  condi- 
tion of  our  tax  system,  though  I  do  not  agree  with  them  as  to  the 
remedy.  In  a  meeting  of  this  kind,  in  anv  movement  for  reform,  I 


TAXATION   IN   INDIANA  33 

believe  that  the  only  benefit  that  can  come  is  from  a  free  inter- 
change of  the  actual  opinions  of  the  speakers,  and  I  propose  to  say 
exactly  what  I  think. 

CHAIRMAN  STOLL  :     You  always  do  that,  don 't  you  ? 

MB.  DUNN:  And  lest  it  be  personal,  let  me  say  that  I  say  it 
with  malice  toward  none  and  charity  to  all. 

A  few  days  ago  Governor  Ralston  said,  "If  I  were  asked  to 
name  the  greatest  hindrance  to  good  government  in  this  country 
today,  I  would  not  hesitate  to  say  it  is  a  lack  of  obedience  to  law. ' ' 
If  he  had  added  to  this  the  words,  ' '  by  public  officials, ' '  he  would 
have  stated  precisely  the  only  material  defect  in  the  Indiana  tax 
system.  I  concede  that  there  are  some  minor  additions  and  altera- 
tions of  the  law  that  might  profitably  be  made,  but  so  far  as  the 
general  property  tax  is  concerned — and  the  general  property  tax 
is  certain  to  be,  for  years  to  come,  the  central  feature  of  our  tax 
system — the  one  overshadowing  defect  is  the  persistent  refusal  of 
tax  officials  to  perform  their  sworn  duty. 

This  utterance  of  Governor  Ralston,  at  this  time  is  peculiarly 
cheering.  He  is  the  man  who  has  been  chosen  for  the  great  consti- 
tutional duty  of  seeing  that  the  law  is  enforced,  and  his  relation  to 
the  State  Tax  Board  requires  that  he  see  to  the  enforcement  of  the 
tax  laws  especially.  He  is  just  coming  to  the  performance  of  that 
duty.  His  record  is  yet  to  be  made.  But  from  the  time  our  tax 
law  was  passed,  in  1891,  up  to  Governor  Ralston 's  term,  we  have 
not  had  a  single  governor  who  had  intelligence  enough  to  grasp  the 
vast  importance  of  this  law,  or  the  courage  and  honesty  to  en- 
force it. 

And  this  is  the  more  extraordinary — indeed  it  is  the  most  extra- 
ordinary thing  that  I  have  ever  met  in  economic  history — because 
this  law  was  a  great  remedial  measure,  which  was  passed  as  a  party 
measure,  and  entrusted  to  party  leaders  for  enforcement;  but 
which  has  never  been  enforced  for  a  single  day.  In  the  election 
following  its  passage  it  was  the  one  great  issue  of  the  campaign, 
and  even  on  the  partial  enforcement  it  had  then  received  it  was 
vindicated  by  an  overwhelming  majority  of  the  people.  And  yet, 
although  no  political  party  has  ventured  to  oppose  the  law  since 
then,  the  violation  of  the  law  has  steadily  increased  until  now  our 
tax  system  is  in  practically  as  deplorable  condition  as  it  was  when 
the  law  was  passed.  The  one  great  remedy  offered  by  this  law  has 
never  been  tried  at  all.  I  do  not  ask  you  to  take  my  word  for  this. 
I  propose  to  give  you  unanswerable  evidence  of  it. 

3—848 


34  INDIANA   UNIVERSITY 

And  first  of  the  purpose  of  the  law.  I  was  at  the  time  of  its 
passage  State  Librarian  of  Indiana,  and  I. had  instituted  what  has 
since  developed  into  the  legislative  reference  system,  in  this  coun- 
try. I  was  also  one  of  the  editors  of  the  Sentinel — the  Democratic 
party  organ — and  the  Democrats  had  the  legislature.  The  state 
was  financially  embarrassed,  and  the  situation  had  to  be  met.  I 
secured  and  put  in  the  State  Library  everything  bearing  on  public 
finances  and  taxation  that  I  could  find.  Among  other  books  I 
obtained  Prof.  Ely's  work  on  Taxation  in  American  States  and 
Cities,  and  on  reading  it  I  was  satisfied  that  he  had  found  the  solu- 
tion of  Indiana's  troubles.  I  submitted  it  to  several  intelligent  and 
influential  party  leaders,  including  legislators,  and  they  all  agreed 
in  this  opinion. 

The  obvious  cause  of  the  state's  financial  embarrassment  was 
the  undervaluation  of  property  by  local  assessors.  Every  county 
was  in  the  race  to  lower  assessments  to  escape  state  taxes;  and 
every  township  was  in  the  race  to  lower  assessments  to  escape  state 
and  county  taxes.  Politicians  hesitated  to  increase  the  state  tax 
rates  and  consequently  the  state  was  in  continual  trouble.  It  has 
come  back  to  exactly  the  same  trouble  now,  for  exactly  the  same 
reason ;  and  has  been  forced  to  resort  to  temporary  loans  to  meet 
its  current  expenses.  The  most  evident  and  certain  prevention  of 
this  evil  was  the  separation  of  the  sources  of  state  and  municipal 
revenues;  and  this  was  first  attempted.  Mr.  Oppenheim,  the 
House  leader,  introduced  a  bill  turning  railroad  and  certain  other 
property  over  to  the  state  for  state  taxation,  and  exempting  it  from 
local  taxation.  This  was  defeated  by  the  combined  efforts  of  the 
railroad  lobby  and  the  counties  that  had  large  railroad  mileage.  A 
proposal  to  turn  half  of  the  railroad  taxes  over  to  the  state  met  the 
same  fate. 

There  remained  then  nothing  but  a  reconstruction  of  the  gen- 
eral tax  law  with  the  purpose  of  meeting  the  same  end.  For  this 
purpose  it  was  decided  to  give  the  State  Tax  Board  absolute  power 
over  assessments,  with  the  right  to  increase  or  decrease  the  assess- 
ment of  any  county,  and  consequently  of  the  entire  state.  But 
this  was  only  the  administrative  feature  of  the  law.  Without  any 
material  change  in  its  general  provisions,  it  was  determined  to 
recast  it  on  the  following  principles. 

1.  All  inequality  of  taxation,  under  a  general  tax  law  is  ine- 
quality of  assessment.  This  is  necessarily  true  because  the  rates 
are  fixed  as  to  all  property,  and  the  only  variation  is  in  the  assess- 
ment. 


TAXATION    IN   INDIANA  35 

2.  It  is  practically  impassible  to  secure  equality  of  assessment 
except  at  true  cash  value,  because  this  is  the  easiestf  and  most 
natural  mode  of  valuation,  and  whenever  you  leave  it  the  assessor 
is  adrift  without  rudder  or  compass.  The  task  of  recasting  the  law 
in  accordance  with  these  principles  was  left  to  Judge  Timothy 
Howard,  and  he  did  it  thoroughly — so  well  that  it  resisted  success- 
fully every  attack  made  on  it  in  the  courts ;  and  it  was  attacked  at 
every  point,  by  the  ablest  corporation  lawyers  of  the  country. 

The  great  central  feature  of  the  new  law  was  assessment  at  true 
cash  value.  Every  tax  official  from  the"  State  Tax  Board  to  the 
township  assessor  was  required  to  take  an  oath  to  assess  at  true 
cash  value,  and  only  at  true  cash  value.  Furthermore,  every  one  of 
these  officials  was  put  under  penalty  of  three  hundred  dollars  fine 
and  a  year's  imprisonment  for  any  failure  to  assess  at  true  cash 
value.  And  yet,  from  the  first  not  a  solitary  tax  official  in  the 
state  has  assessed,  or  attempted  to  assess,  property  at  true  cash 
value. 

The  trouble  began  with  the  first  State  Board.  At  their  request 
I  made  the  first  valuation  of  railroads  for  them.  The  existing  ine- 
quality in  railroad  assessment  was  outrageous.  Some  roads  were 
assessed  as  low  as  ten  per  cent,  of  true  value,  and  one  road,  a  Van- 
derbilt  property  in  the  north  end  of  the  state,  was  assessed  at  more 
than  its  true  value.  The  Board  sealed  my  figures  thirty  per  cent., 
with  an  additional  decrease  in  Marion  County.  I  protested,  and 
the  Board  urged  that  real  estate  had  not  been  assessed  at  over 
seventy  per  cent,  of  true  cash  value,  on  the  average,  which  was 
true.  I  insisted  that  it  then  perform  its  sworn  duty  and  raise  all 
real  estate  to  true  cash  value,  which  it  had  full  power  to  do.  The 
answer  was  that  if  this  were  done,  the  tax  rate  fixed  by  the  legisla- 
ture would  produce  fifty  per  cent,  more  revenues  than  the  legisla- 
ture had  contemplated ;  that  the  people  were  already  excited  over 
the  general  increase  of  assessments;  that  it  would  be  political 
suicide  to  increase  them  fifty  per  cent.  more.  Being  practically 
without  backing,  and  helpless  except  to  raise  a  row,  I  submitted. 
What  was  actually  reached  that  year  was  an  approach  to  a  fair 
equalization  at  about  seventy  per  cent,  of  true  cash  value;  and 
that  was  a  vast  improvement.  Notwithstanding  the  cut  of  thirty 
per  cent,  the  railroad  valuation  of  the  state  was  increased  from 
$69,762,676  to  $161,039,169,  or  over  one  hundred  and  thirty  per 
cent.,  while  other  property  generally  was  increased  less  than  fifty 
per  cent. 

This  was  one  of  the  incidental  demonstrations  that  it  is  the 


36  INDIANA   UNIVERSITY 

large  properties  that  escape  taxation,  with  undervaluation.  This 
fact  was  fully  demonstrated  by  Prof.  Ely,  and  it  is  the  unanimous 
testimony  of  every  tax  investigation  that  has  been  made  in  the 
country.  An  actual  test  of  the  result  was  made  in  Center  Township, 
Marion  County,  on  the  line  of  $25,000  valuation.  The  tax  dupli- 
cates showed  five  hundred  and  forty-nine  (549)  taxpayers  assessed 
at  $25,000  or  more,  and  these  owned  practically  one-half  of  the 
taxable  property  in  the  township.  Their  assessments  had  been 
increased  an  average  of  seventy-five  per  cent.  The  remaining 
property  in  the  township  was  owned  by  38,014  taxpayers,  and  their 
assessments  had  been  increased  only  fifty-five  per  cent.  If  the  line 
had  been  drawn  at  $5,000  instead  of  $25,000  the  difference  would 
have  been  far  more  striking.  In  the  ensuing  campaign  it  became  a 
common  practice  for  Democratic  speakers  to  get  the  tax  figures  on 
properties  near  which  they  spoke ;  and  in  the  poorer  parts  of  the 
city,  although  there  had  been  a  large  increase  in  the  total  taxes,  the 
speakers  could  point  to  neighboring  properties  and  show  that  there 
had  been  no  increase  of  taxes,  or  only  an  immaterial  increase,  in 
nine  cases  out  of  ten. 

If  the  people  could  only  be  made  to  understand  this  discrimi- 
nation we  should  soon  have  an  end  of  undervaluation.  The  trouble 
is  that  the  ordinary  man  whose  property  is  valued  at  sixty,  seventy 
or  even  eighty  per  cent,  of  true  value  imagines  that  he  is  a  bene- 
ficiary of  the  system.  But  he  is  not.  In  reality  any  man  who  is 
paying  on  a  sixty  per  cent,  valuation  in  Indiana  today  is  paying 
part  of  the  taxes  that  ought  to  be  paid  by  large  property  owners, 
and  does  not  know  it. 

I  have  said  that  the  undervaluation  under  the  new  law  went 
from  bad  to  worse,  until  now  it  is  deplorable.  I  do  not  ask  you  to 
take  my  word  for  this — I  read  from  the  last  report  of  the  State  Tax 
Board : 

"It  may  well  happen,  and  in  actual  practice  does  happen,  every 
year,  that  there  is  a  shocking  lack  of  uniformity  in  the  assessment 
of  various  items  of  personal  property  in  the  same  county,  and 
between  the  same  items  of  personal  property  as  between  different 
counties. 

' '  Under  the  law  the  State  Board  has  no  way  of  correcting  such 
inequality.  The  only  thing  that  it  can  do  is  to  increase  or  decrease 
the  valuation  of  the  entire  class  denominated  personal  property, 
thus  perpetuating  the  ratio  of  disparity. 

"As  this  board  can  only  increase  or  decrease  the  assessment  of 


TAXATION    IN   INDIANA  37 

all  personal  property  as  a  class,  i£  follows  that  a  large  number  of 
people  justly  assessed  would  be  obliged  to  share  the  penalty  of  a 
few  who  were  enjoying  an  unfair  discrimination.  Further  than 
that  an  attempt  to  equalize  would  in  some  instances  lead  to  a  ridic- 
ulous result.  It  has  actually  happened  that  moneys  and  credits 
have  been  assessed  at  one  hundred  cents  on  the  dollar,  while  bank 
stocks  have  been  assessed  at  sixty-five  per  cent,  of  the  cash  value. ' ' 

There  are  thousands  of  widows  and  orphans  in  this  state  who 
have  been  assessed  at  one  hundred  cents  on  the  dollar  on  the  little 
insurance  money  that  was  left  to  them  by  a  dead  father  or  husband, 
while  adjoining  wealthy  farmers  have  been  assessed  as  low  as  forty 
or  fifty  per  cent,  on  their  land,  or  even  lower  than  that,  until  this 
last  year  when  the  State  Board  of  Tax  Commissioners  instructed 
the  assessors  to  assess  such  money  at  seventy-five  per  cent,  of  the 
true  cash  value,  and  that  concession  is  now  made  to  widows  and 
orphans  in  this  state. 

"In  such  a  case,  in  order  to  reach  the  bank  stocks  it  would  be 
necessary  to  assess  moneys  at  more  than  their  face  value. 

"The  difficulties  attending  the-  attempt  at  uniformity  of  assess- 
ment are  infinitely  increased  by  the  general  disregard  of  the  man- 
date of  the  statute,  repeated  in  many  places,  that  all  property  shall 
be  assessed  at  its  true  cash  value.  Even  statutes  making  it  a  crim- 
inal offense  for  a  property  owner  to  give  in  a  false  list,  or  for  an 
assessing  officer  to  assess  at  other  than  the  true  cash  value  have  no 
terror  for  the  one  or  the  other.  The  property  owner  feels  that 
through  no  fault  of  his  he  is  compelled  to  choose  between  perjury 
and  confiscation  and  he  more  or  less  cheerfully  chooses  that  which 
he  thinks  has  become  right  by  custom. 

"When  the  present  law  was  enacted  in  1891,  its  author,  a  dis- 
tinguished jurist  yet  living,  intended  that  property  should  be 
assessed  at  its  actual  cash  value,  but  adequate  administrative  ma- 
chinery had  not  then  been  provided  and  the  only  chance  to  enforce 
the  law,  as  written,  was  lost  with  the  first  assessment. 

"In  the  intervening  twenty  years,  the  state  and  its  various 
taxing  divisions,  have  adjusted  their  fiscal  affairs  to  fit  the  present 
method  of  assessment,  and  without  radical  legislative  changes  it 
would  be  disastrous,  at  this  time,  to  attempt  to  enforce  full  valua- 
tion. The  sudden  increase  of  100  per  cent,  in  the  debt  incurring 
power  of  municipalities,  would  result  in  such  extravagance  and  dis- 
arrangement of  financial  affairs  that  the  state  might  not  recover  in 
a  generation." 


38  INDIANA    UNIVERSITY 

Note  these  words — "a  suddeji  increase  of  100  per  cent."  Thai 
is  what  the  State  Tax  Board  says  would  be  needed  to  reach  true 
cash  value.  In  other  words  the  average  assessment  now  is  fifty  per 
cent,  of  true  value,  as  against  seventy  per  cent,  in  1891. 

But  there  are  two  other  striking  points  in  what  I  have  read. 
First  we  have  now  reached  the  stage  when  it  is  proclaimed  a  virtue 
to  violate  law  and  official  oaths.  Note  the  words:  "The  sudden 
increase  of  100  per  cent,  in  the  debt  incurring  power  of  municipali- 
ties, would  result  in  such  extravagance  and  disarrangement  of 
financial  affairs  that  the  state  might  not  recover  in  a  generation." 

The  State  Board  must  violate  the  law  to  save  municipalities 
from  criminal  extravagance!  How  does  that  adjust  to  your  ideas 
of  local  self  government  ?  Do  you  believe  that  the  cities  and  towns 
of  Indiana  are  capable  of  managing  their  own  affairs,  or  that  a 
self-appointed  guardian,  in  the  State  Board  of  Tax  Commissioners, 
is  desirable?  In  reality  by  this  undervaluation  eve>ry  progressive 
municipality  in  the  state  is  being  crippled.  Our  constitution  limits 
municipal  debt  to  two  per  cent,  of  assessed  value,  but  the  constitu- 
tion contemplated  that  assessed  value  should  be  true  value.  That 
is  a  low  debt  limit,  but  it  is  practically  cut  in  two  by  the  underval- 
uation that  exists,  and  public  enterprises  that  require  the  use  of 
public  credit  are  defeated. 

But  again,  this  report  puts  the  blame  on  local  assessors.  I  dis- 
sent. I  say  the  local  assessors  have  made  no  worse  record  than  the 
State  Board  has  made  with  property  which  it  assesses  originally. 
Let  us  take  railroad  property.  In  1891  it  was  assessed  at  about 
seventy  per  cent,  of  true  cash  value.  In  1904,  under  the  celebrated 
* '  business  administration ' '  of  Governor  Winfield  Durbin,  the  total 
railroad  assessment  of  Indiana  was  $165,863,367.  That  same  year 
the  U.  S.  Census  Bureau  made  an  expert  true  cash  valuation  of  all 
the  railroads  in  the  country;  and  its  valuation  of  the  Indiana  rail- 
roads was  $375,541,000.  In  other  words,  the  railroads  of  Indiana 
were  assessed  that  year,  by  the  State  Tax  Board,  at  an  average  of 
forty-four  per  cent,  of  true  value. 

Now  take  another  step  in  the  descent  to  Avernus.  A  few  days 
ago  public  attention  was  called  to  the  assessment  of  the  Terre 
Haute,  Indianapolis  &  Eastern  Traction  Company,  in  the  strike 
controversy  before  the  Public  Utilities  Commission.  Now  this 
company,  in  its  own  reports  to  the  Commission,  showed  a  capitali- 
zation of  $42,340,000,  including  the  subsidiary  companies ;  of  which 
$16,790,000  was  bonds,  and  $25,550,000  stock.  It  gave  its  estimated 
true  value  at  $41,946,000,  but  it  was  explained  at  the  hearing  that 


TAXATION    IN    INDIANA  39 

this  valuation  was  only  "for  rating  purposes."  The  whole  prop- 
erty was  assessed  for  taxation  by  the  State  Board,  in  this  same 
year,  1912,  for  $4,668,647,  or  a  little  more  than  one-tenth  of  the 
company's  estimate  for  rating  purposes.  But  there  was  a  more 
certain  basis  for  valuation.  The  company  reported  its  net  earnings 
for  1912  at  $1,437,789.50.  There  is  no  active  business  property  in 
Indiana  that  is  not  worth  at  least  its  six  per  cent,  net  earning  value, 
and  this  is  six  per  cent,  on  $23,963,125,  or  a  little  more  than  five 
times  the  amount  for  which  it  is  taxed.  In  other  words,  the  State 
Tax  Board  has  assessed  this  property  for  less  than  twenty  per  cent, 
of  true  cash  value.  You  may  assume  that  all  other  property  as- 
sessed by  the  Board  is  on  the  same  basis;  or  you  may  assume,  what 
is  more  probably  the  case,  that  this  property  is  assessed  lower  than 
other  railroad  property.  But  on  either  assumption,  in  what  respect 
is  the  State  Board  doing  any  better  than  the  most  incompetent 
township  assessor  in  the  state? 

Any  thorough  investigation  will  show  that  this  discrimination  in 
favor  of  large  property  owners  exists  everywhere  in  the  state,  as 
indeed  it  does  throughout  the  whole  country.  Some  months  ago  a 
Centennial  Commission  was  authorized  to  take  options  on  land  for 
a  centennial  building  at  Indianapolis.  The  land  wanted  was  held 
by  a  number  of  owners,  none  of  whom  were  willing  to  accept 
assessed  value  for  their  property.  But  the  small  owners  asked  only 
about  twice  the  assessed  value,  while  the  larger  owners  wanted 
three  to  four  times  the  assessed  value.  The  Commission  waxed 
indignant  over  the  rapacity  of  the  owners,  but  that  was  not  the 
explanation  of  the  figures.  The  real  meaning  was  that  the  small 
properties  were  assessed  at  about  fifty  per  cent,  of  true  value,  while 
the  large  properties  were  assessed  as  low  as  thirty-three  and  twen- 
ty-five per  cent,  of  true  value. 

The  small  owners  of  Indiana  represent  over  nine-tenths  of  the 
people,  but  what  they  do  not  realize  is  that  they  are  paying  every 
dollar  of  taxes  that  is  escaped  by  the  large  owners.  If  the  people 
could  get  this  simple  fact  into  their  heads,  they  would  soon  dispose 
of  this  iniquity  of  undervaluation.  For  undervaluation  is  the 
direct  cause  of  this  inequality,  as  is  known  by  every  tax  expert  in 
the  country,  and  as  has  been  demonstrated  by  every  tax  investi- 
gation. 

Now,  what  are  you  going  to  do  about  it?  You  have  the  law 
absolutely  requiring  assessment  at  true  cash  value.  You  have 
every  tax  official  under  oath  to  assess  only  at  true  cash  value.  You 
have  a  penalty  for  any  failure  to  assess  at  true  cash  value.  What 


40  INDIANA    UNIVEKSI'IY 

more  can  you  do  ?  I  believe  this  conference  could  do  one  thing  that 
would  really  have  some  effect.  It  could  adopt  a ..resolution  asking 
the  Christian  churches  to  pray  for  the  moral  development  of  the 
tax  officials  of  this  state.  (Laughter.)  Now,  gentlemen,  don't  take 
that  as  a  joke.  One  of  my  troubles  is  that  sometimes  what  I  say 
seriously  is  taken  as  a  joke,  and  what  I  say  as  a  joke  is  taken  seri- 
ously. That  is  exactly  what  is  needed,  and  the  sooner  the  public 
understand  it  the  sooner  you  will  get  it, 

In  this  state  the  State  Tax  Board  has  been  devoting  its  efforts 
to  the  utterly  hopeless  task  of  inducing  assessors  to  violate  the  law 
to  the  same  extent.  It  is  told  that  a  Governor  of  Indiana  once  said 
to  a  meeting  of  assessors,  "Now,  boys,  we  all  know  that  we  are  all 
liars,  but  let's  try  to  Jie  on  the  same  basis. "  He  might  as  well  have 
pleaded  with  the  wind.  Whenever  you  let  men  understand  that 
they  can  violate  the  law,  at  all,  you  will  have  as  many  varieties  of 
violation  as  you  have  men  to  deal  with,  and  it  does  not  make  any 
difference  whether  you  are  dealing  with  tax  officials  or  saloon 
keepers,  or  any  other  class  of  people.  Human  nature  is  a  constant 
quantity. 

If  this  evil  is  to  be  corrected,  people  must  be  made  to  under- 
stand that  it  is  a  moral  question.  Can  you  distinguish  between  the 
moral  turpitude  of  taking  men's  money  at  the  point  of  a  pistol,  and 
taking  it  by  a  systematic  violation  of  law  under  legal  forms?  To 
me  the  latter  is  the  worse,  in  this  case,  for  it  is  the  robbery  of  the 
poor  for  the  benefit  of  the  rich.  Think  of  it.  The  Terre  Haute, 
Indianapolis  and  Eastern  Traction  assessed  at  less  than  twenty  per 
cent,  of  true  value — the  average  valuation  of  the  state  estimated  at 
fifty  per  cent,  of  true  vaJue — and  the  widows'  mite,  formerly  taxed 
at  one  hundred  per  cent,  now  reduced  to  seventy-five  per  cent,  by 
the  grace  of  the  State  Tax  Board. 

"Woe  unto  you  scribes  and  pharisees,  hypocrites!  for  ye  de- 
vour widows'  houses,  and  for  a  pretense  make  long  prayers;  there- 
fore ye  shall  receive  the  greater  damnation." 

Can  you  suggest  any  more  appropriate  comment  than  that 
given  by  divine  wisdom  centuries  ago?  (Applause.) 

THURSDAY,  FEBRUARY  5 —AFTERNOON  SESSION 

[Hon.  Jacob  P.  Dunn  of  Indianapolis  was  introduced  as  the 
presiding  officer  for  the  afternoon  session.  On  motion  of  Dr.  Will- 
iam A.  Rawles  it  was  voted  to  hold  over  the  discussion  of  the  sub- 
ject of  the  morning  session  for  thirty  minutes  for  any  further 
remarks  which  gentlemen  might  wish  to  offer.] 


TAXATION   IN    INDIANA  41 

MB.  E.  B.  STOTSENBURG  :  Mr.  President  and  gentlemen  of  the 
conference — During  a  brief  service  in  the  General  Assembly  of  this 
state  I  have  been  giving  some  little  attention  to  the  tax  question.  I 
probably  have  only  been  touching  the  high  spots.  I  was  glad  to 
receive  an  invitation  to  attend  this  conference  because  I  knew  this, 
that  the  tax  problem  was  present  in  the  minds  of  others  in  Indiana 
besides  myself ;  and  I  felt  that  if  I  could  come  here  and  hear  this 
discussion  I  certainly  would  take  away  with  me  much  that  would 
be  food  for  thought. 

I  do  not  agree  with  Mr.  Link,  neither  do  I  agree  with  Mr. 
Dunn,  that  the  remedy  of  the  tax  situation  in  Indiana  is  simply 
either  to  change  the  tax  law  on  the  one  hand,  or  on  the  other  to 
enforce  the  present  law  differently  from  the  way  it  is  now  being 
enforced.  I  think  the  evil  of  taxation  in  Indiana,  the  root  of  it, 
will  be  found  much  deeper  than  the  present  tax  law.  You  must  go 
to  the  base,  and  that  is  the  provision  in  the  constitution  of  Indiana 
authorizing  your  General  Assembly  to  assess  taxes. 

Mr.  Link  says  the  present  tax  law  was  adopted  twenty-three 
years  ago.  The  basis  of  the  present  tax  law  was  adopted  two-thirds 
of  a  century  ago,  when  Indiana  was  nothing  but  a  pioneer  state. 
There  was  practically  no  wealth  in  Indiana  at  that  time.  The 
largest  city  in  the  State  was  my  home  city,  New  Albany,  at  that 
time  a  city  of  less  than  seven  thousand  souls.  Agriculture  was  the 
industry  of  the  state.  What  was  the  result?  The  result  was  this: 
That  when  the  constitutional  convention  of  1852  met  at  Indianapo- 
lis and  formulated  the  present  constitution  they  had  in  mind  sim- 
ply one  thing — property — and  to  the  minds  of  those  men  property 
was  land  or  chattels.  There  was  practically  no  money.  And  so 
they  wrote  into  your  constitution  what  to  my  mind  is  the  cause  of 
the  present  condition  today  in  this  state.  They  said  this,  that 
"The  General  Assembly  shall  provide,  by  law,  for  a  uniform  and 
equal  grade  of  assessment  and  taxation;  and  shall  prescribe  such 
regulations  as  shall  secure  a  just  valuation  for  taxation  of  all 
property. ' ' 

The  law  provides  for  a  uniform  and  equal  rate  of  assessment 
and  of  taxation.  What  has  been  the  result?  The  result  has  been 
this,  that  that  basic  law  of  the  state  has  driven  from  the  state  all 
the  growth — not  all,  but  much  of  the  growth  that  naturally  would 
come  here ;  and  in  addition  to  that  it  has  expelled  from  the  state 
much  of  the  growth  that  naturally  ought  to  remain  here.  It  has 
made  a  tax  law  the  basis  of  which  is  the  single  idea  of  present 
needs ;  and  that  is  the  trouble  with  the  tax  system  today.  Present 


42  INDIANA   UNIVERSITY 

need.  What  revenue  do  we  need  in  this  year  1914  ?  We  have  abso- 
lutely no  thought  of  what  effect  a  tax  law  is  going  to  have  on  the 
future  raising  of  revenue.  We  have  absolutely  no  thought  of 
what  effect  a  tax  law  is  going  to  have  upon  the  future  growth  of 
the  state.  Solely  and  singly  that,  and  I  think  that  is  what  Brother 
Dunn  has  in  mind  when  he  says  we  must  enforce  the  law  and  raise 
the  assessment  of  property.  Why  ?  So  as  to  bring  in  sufficient 
revenue  this  year. 

Now,  if  we  could  close  up  each  year,  and  if  the  effect  ended  with 
the  end  of  the  year,  it  would  be  all  right;  but  we  cannot 
do  that.  And  so  the  result  has  been  this:  in  order  to  raise  money 
for  today,  for  the  time  being,  we  have  on  the  one  hand  increased 
assessments,  and  on  the  other  hand  we  have  constantly  increased 
the  rate  of  taxation.  Now  what  do  we  want?  We  want  to  get 
away  from  that  idea,  and  to  adopt  in  this  state,  not  simply  a  law 
through  which  and  by  which  we  can  raise  assessments,  but  which 
will,  at  one  and  the  same  time,  put  property  upon  the  tax  books  for 
assessment  fairly,  justly  and  honestly ;  and  at  the  same  time  have 
in  mind  the  future  growth  and  welfare  of  the  state. 

Under  the  idea  that  property  is  everything  that  you  can  put 
taxes  upon,  we  have  taxed  money.  Why  money  is  the  very  blood 
that  sustains  trade.  Going  through  the  banks  it  sustains  trade. 
Why  should  we  tax  it  at  all?  There  absolutely,  to  my  mind,  ought 
to  be  no  tax  on  money.  Tt  produces  but  little  revenue.  It  drives  it 
out  of  the  state.  Take  the  borders  of  your  state  especially,  situated 
as  we  are  along  the  river.  It  drives  from  the  state  and  from  the 
channels  of  trade  in  the  state,  over  into  Kentucky,  the  revenue  that 
we  ought  to  be  having  here  in  Indiana.  It  drives  it  over  there 
because  it  wants  to  escape  taxation,  and  for  the  sole  purpose  of 
escaping  taxation. 

The  remedy  must  be,  as  I  said,  at  the  root.  You  will  have  to  go 
to  the  root  of  the  trouble.  Mr.  Sims  spoke  to  you  of  a  constitu- 
tional convention.  It  was  my  privilege  to  draft  that  measure.  It 
will  be  submitted  to  the  voters  at  the  next  election.  Whether  or 
not  it  will  be  adopted  no  man  can  tell.  At  the  time  I  drafted  it  T 
had  grave  doubts,  and  so,  with  it  I  quietly  introduced  in  the  Gen- 
eral Assembly  an  amendment  to  the  section  of  the  constitution  that 
I  have  just  read  to  you.  That  amendment  was  agreed  to  by  both 
branches  of  the  General  Assembly  of  1913.  Not  much  was  said 
about  it  because  it  was  not  our  purpose  to  take  the  attention  of  the 
people  away  from  the  main  issue,  but  fearing,  as  I  said,  that  the 


TAXATION    IN    INDIANA  43 

proposition  might  not;  carry,  this  amendment  was  adopted.  Let  me 
read  it  to  you.  It  is  an  amendment  to  Article  10,  Section  1,  one  of 
the  provisions  of  which  I  read  to  you  a  little  while  ago.  It  is  as 
follows : 

"Article  10,  Section  1.  The  General  Assembly  shall  provide  by 
law  for  the  assessment  of  property  for  taxation  and  the  raising  of 
revenue  thereby. ' ' 

Nothing,  you  see,  is  said  about  the  assessment  and  valuation, 
and  that  the  rate  must  be  equal  and  uniform. 

"And  shall  prescribe  such  regulations  as  shall  secure  a  just 
valuation  for  taxation  of  all  property  both  real  and  personal' '- 

Then  follows  the  exempted  class,-  as  in  our  present  constitution, 
to  wit :  "Excepting  such  only,  for  municipal,  educational,  literary, 
scientific,  religious  or  charitable  purposes,  as  may  be  specifically 
exempted  by  law.  In  enacting  laws  for  the  assessment  of  property 
for  taxation  the  General  Assembly  shall  have  the  right  to  classify 
different  kinds  of  property  and  to  provide  for  a  different  manner 
and-  basis  of  assessment  and  rate  of  taxation  for  each  class. ' ' 

If  this,  or  a  similar  amendment,  could  be  adopted  to  the  present 
constitution,  under  it  the  General  Assembly  would  have  the  right 
to  pass  a  new  tax  law  classifying  property,  putting  a  certain  rate  of 
tax  upon  land,  putting  a  certain  rate  of  tax,  if  it  was  thought  best, 
upon  personal  property ;  putting  a  different  rate  upon  mortgages ; 
exempting  money  if  you  desire. 

Until  this  is  done,  I  do  not  believe  that  we  here  in  Indiana  can 
get  any  relief  from  the  tax  situation,  by  enforcing  the  present 
tax  law,  which  has  been  tried  for  twenty-three  years — and  cer- 
tainly twenty-three  years  is  sufficiently  long  to  determine  the  worth 
of  anything. 

Neither  do  I  believe  that  you  can  get  any  relief  from  the  situa- 
tion by  amending  the  present  tax  law.  It  will  require  a  new  foun- 
dation, and  built  upon  that  foundation,  it  will  require  a  new  law 
in  accord  with  the  tax  law  of  the  other  progressive  states  in  this 
Union.  I  thank  you.  (Applause.) 

CHAIRMAN  DUNN  :  Is  there  any  other  gentleman  who  desires  to 
be  heard  ?  If  nobody  else  wants  to  be  heard  we  will  go  on  with  the 
regular  program. 

MR.  STOTSENBURG  :  Mr.  Chairman,  I  have  some  copies  of  this 
amendment  that  I  will  leave  here  at  the  door,  and  any  gentleman 
that  desires  one  can  get  a  copy. 


44  INDIANA    UNIVERSITY 


CHAIRMAN  DUNN  :  "We  will  next  have  the  pleasure  of  hearing  a 
paper  on  <;The  Taxation  of  Money  and  Credits  in  Minnesota,"  by 
Dr.  Raymond  V.  Phelan,  Lecturer  in  the  University  of  Minnesota. 

TAXATION  OF  MONEY  AND  CREDITS  IN  MINNESOTA 

DR.  PHELAN  :  Mr.  President,  ladies  and  gentlemen  of  the  Con- 
ference— Minnesota  has  contributed,  on  the  one  hand,  to  the 
familiar  American  story  of  tax  evasion,  inequality,  and  injustice; 
this  state,  on  the  other  hand,  shows  distinctly  modern  tendencies 
toward  reasonableness,  equity,  and  justice  in  the  raising  of  public 
revenue.  Minnesota,  entering  the  Union  in  1858,  declared  in  its 
constitution  for  taxes  as  nearly  equal  as  may  be,  for  taxation  of 
moneys,  credits,  bonds,  stocks,  and  real  and  personal  property, 
and  also  for  certain  specified  exemptions  from  taxation.  A  wide- 
open  tax  amendment  adopted  in  1906  provides  that  taxes  shall 
be  uniform  upon  the  same  class  of  subjects.  The  next  year,  1907, 
the  legislature  very  wisely  created  a  State  Tax  Commission,  which 
might  be  described  as  a  sort  of  administrative  court  essential  to 
the  fullest  and  most  equitable  enforcement  of  the  tax  laws  of  a 
state.  In  1907  also,  a  mortgage  registry  tax  law  was  enacted. 
This  mortgage  law  (S.  1907,  ch.  328.)  stipulated  a  registration  tax 
of  fifty  cents  on  each  one  hundred  dollars  of  mortgage  value,  to 
be  paid  at  the  time  of  registration.  The  Minnesota  Supreme  Court 
has  since  decided  that  this  tax  is  one  not  on  the  debt  but  on  the 
privilege  of  registration  (104  Minn.  179).  Recently  in  1913  (ch. 
163)  the  mortgage  registration  tax  has  been  changed  to  fifteen 
cents  on  each  hundred  dollars  where  the  mortgage  is  to  run  to  five 
years  or  less,  and  twenty-five  cents  where  it  is  to  run  beyond  five 
years.  In  1911  Minnesota  adopted  a  three  mill  tax  on  moneys 
and  credits  (exclusive  of  registered  mortgages). 

Up  to  1907  the  several  county  registers  of  deeds  were  required 
to  furnish  lists  of  all  registered  mortgages.  These  lists  were  added 
to  the  personal  property  assessment  books.  Minnesota  had  but 
rarely  succeeded  in  taxing  the  mortgages  of  persons  outside  of  the 
state ;  consequently  the  well-known  device  of  registering  fictitiously 
in  the  names  of  non-residents  became  general.  The  mortgage  tax 
law  was  a  decided  failure.  The  average  revenue  from  all  credit* 
for  the  years  1905-07  (this  average  is  taken  because  the  returns 
for  1907,  $281,403,  were  not  normal)  was  $306,534.  In  1908  the 
mortgage  tax  alone  yielded  $306,009,  and  the  other  credits  $238,- 
124.  In  the  last  four  years  the  mortgage  registry  law  has  brought 
in  each  year  over  $500,000. 


TAXATION    IN    INDIANA  45 

. 

With,  the  growth  of  Minnesota,  the  development  of  its  commerce 
and  industry,  and  the  increase  of  its  wealth,  the  inevitable  evasion 
of  taxes  on  intangible  personalty  became  a  matter  of  increasing 
significance.  The  money  and  credits  listed  in  1910  amounted  to 
less  than  three  per  cent,  of  the  estimated  value  of  such  property. 
Up  to  1911  (the  first  year  of  the  three  mills  law),  moneys  and 
credits  had  never  exceeded  twenty-nine  per  cent,  of  the  total  per- 
sonal property  assessment  of  the  state.  To  remedy  this  situation, 
the  Tax  Commission  recommended  a  special  money  and  credit  tax 
of  four  mills,  which  was  estimated  to  be  about  ten  per  cent,  of  the 
average  income  on  moneys  and  credits.  The  three  mills  law  fol- 
lowed. Money  in  Minnesota  includes,  as  usual,  all  forms  of  cur- 
rency in  common  use  whether  in  hand  or  on  deposit  in  any  bank. 
Credits  embrace  book  accounts,  bills  receivable,  notes,  bonds,  rents, 
annuities,  and  mortgages  not  paying  the  registry  tax.  (State  and 
municipal  bonds  issued  subsequently  to  the  law  are  exempt).  No 
deductions  are  allowed  for  debts. 

Each  citizen  is  expected  under  the  three  mills  law  to  make  a 
sworn  statement,  on  a  blank  provided  by  the  assessor,  of  all  his 
money  and  credits.  When  such  a  list  is  sworn  to,  the  assessor  can 
take  no  exception  to  the  items ;  but  he  may  alter  the  values  in  ac- 
cordance with  his  best  information  and  belief.  When  a  list  is  not 
sworn  to  or  not  returned  at  all,  the  assessor  has  full  discretion 
with  respect  to  items  as  well  as  to  values.  A  fifty  per  cent  penalty 
is  supposed  to  be  added  when  no  return  is  made.  The  receipts 
from  this  tax  go  one-sixth  to  the  revenue  fund  of  the  state,  one-sixth 
to  the  county  revenue  fund,  one-third  to  the  city,  village,  or  town, 
and  one-third  to  the  school  district. 

The  three  mills  law  was  not  approved  until  April  19,  1911 ;  yet 
even  in  that  year  this  law,  supplemented  by  reassessments  or- 
dered by  the  Tax  Commission,  showed  marked  results.  These 
reassessments,  requested  in  some  cases  by  the  county  boards  of 
equalization  and  in  others  initiated  by  the  Tax  Commission,  were 
made  by  ninety  special  assessors  in  297  of  the  2,400  taxing  districts 
in  49  of  the  86  counties.  In  these  297  districts  the  original  assess- 
ments showed  1831  persons  taxed  on  $4,602,296;  the  reassess- 
ments discovered  8,630  persons  for  a  total- valuation  of  $14,221,949. 
The  average  assessment  for  a  person  was  approximately  $2,514; 
on  the  reassessment  it  was  approximately  $1,648.  It  would  be  val- 
uable to  know  whether  the  new  law  and  reassessment  insures  a 
fuller  assessment  of  everybody,  or  whether  it  results  in  a  fuller 
return  of  a  greater  number  of  small  holders  who  formerly  evaded 


46  INDIANA   UNIVERSITY 

in  whole  or  in  part.  The  Tax  Commission  in  1912  was  greatly 
occupied  with  real  estate  assessments.  In  that  year  only  seven 
districts  in  four  counties  were  reassessed  for  money  and  credits. 
The  assessment  in  these  districts  revealed  72  persons  assessed  at 
$45,806;  the  reassessments  revealed  134  persons  and  $316,812. 
About  one-third  of  the  assessors  in  1913  appeared  to  have  failed 
of  their  full  duty.  Reassessments  were  made,  however,  in  only 
239  districts.  The  assessments  in  these  districts  were  against  2,362 
persons  for  a  valuation  of  $3,128,358.  Upon  reassessment  these 
figures  rose  to  6,718  persons  and  $8,311,668,  or  a  gain  in  valuation 
of  $5,183,310.  For  International  Falls,  where  there  are  three  big 
companies,  the  valuation  was  increased  from  $31,167  to  $417,114. 
In  Fillmore  County,  from  which  there  had  come  a  Tax  League 
protest  against  alleged  over-assessment,  the  reassessment  increased 
the  original  77  persons  assessed  for  $64,454  to  214  persons  assessed 
for  $345,561.  Six  districts  of  Ottertail  County  with  44  persons 
for  $23,950  according  to  the  original  assessment  rose  upon  reassess- 
ment to  218  persons  for  a  value  of  $218,570.  The  reassessors  are 
selected  by  the  Tax  Commission  from  among  assessors  who  have 
shown  reasonable  merit  and  from  among  other  persons  competent 
for  the  work.  Each  one  is  paid  six  dollars  a  day  (double  the  regu- 
lar pay)  and  is  allowed  certain  expenses.  They  are  furnished  by 
the  Tax  Commission  with  a  very  courteous,  well-worded  letter  ex- 
plaining the  reason  for  reassessment,  setting  forth  the  change  in 
the  money  and  credits  law,  and  politely  urging  upon  citizens  the 
fullest  cooperation  in  enforcing  this  law.  Copies  of  this  letter  are 
sent  to  property  holders  in  the  district  to  be  reassessed.  The  re- 
assessor  is  furnished  also  with  helpful  questions  and  is  instructed 
to  enlist  the  aid  of  the  county  auditor  and  citizens  in  a  position 
to  assist  in  the  work  of  assessing  anew.  The  total  cost  of  reassess- 
ments in  1913  was  $9,019.48. 

Under  the  old  law,  the  total  money  and  credit  assessments 
amounted  in  1910  to  $13,909,806,  and  were  against  6?200  persons 
estimated.  In  1911  under  the  three  mills  law  41,439  persons  were 
assessed  for  $115,481,807 ;  in  1912  there  were  50,564  persons  for 
$135,369,314;  in  1913,  57,068  persons  for  $156,969,819.  No  allow- 
ance obviously  is  made  in  these  figures  for  increase  of  population 
or  growth  of  wealth ;  but  this  is  scarcely  necessary,  so  marked  are 
the  increases  just  noted.  Three  mills  instead  of  thirty  mills,  plus 
reassessments  shows  an  increase  from  1910  to  1911,  from  6,000 
persons  to  41,000  and  from  $14,000,000  to  $115,000,000,  The  old 


TAXATION   IN   INDIANA  47 

provision  was  in  operation  decidedly  inequitable.  In  it  law  and 
morality  clashed.  The  new  provision  can  be  justly  enforced.  It, 
therefore,  has  two  advantages.  It  tends  to  prevent  the  grievous 
inequality  of  the  old  tax,  a  tax  "on  honesty  and  ignorance;'*  and 
secondly,  under  it,  the  Tax  Commission  can  conscientiously  exercise 
that  close  supervision  of  local  assessments  without  which  a  State 
can  hardly  have  equity  and  justice  in  its  taxation. 

Minnesota's  three  mills  tax  has  not  decreased  the  state's  rev- 
enue. In  1910  with  an  average  general  property  tax  of  28  mills, 
money  and  credits  brought  to  the  state  a  revenue  of  $379,754.58 ; 
the  three  mills  tax  in  1911  yielded  $347,028.38,  a  loss  of  only  $32,- 
726.18.  The  state  minus  St.  Paul  and  Minneapolis  showed  a  gain 
in  revenue  in  1911  of  $71,505.85.  Sixty-eight  counties  showed  a 
gain ;  only  eighteen  a  loss.  The  loss,  furthermore,  in  Minneapolis 
and  St.  Paul  may  have  been  only  apparent,  because  of  the  prac- 
tice in  these  cities  prior  to  1911  of  lumping  the  properties  of  very 
large  holders  and  then  estimating  the  value  of  each  class  of  their 
property.  It  should  be  noted,  too,  that  no  reassessing  has  been  done 
in  these  cities.  The  total  revenue  from  money  and  credits  was  in 
1912,  $406,107.94;  in  1913,  $470,909.67. 

The  grave  trouble  with  the  old  tax  on  moneys  and  credits  is 
not  necessarily  that  it  involves  double  taxation,  for  double  taxa- 
tion may  square  with  the  principle  of  equity  according  to  the 
ability  of  the  person  to  pay;  but  the  old  tax  is  strikingly  wrong 
because  it  cannot  morally  or  practically  bo  fully  collected.  It 
would  be  unjust  if  paid  by  all ;  it  is  grievously  unjust  wheh  paid 
only  by  the  conscientious  and  the  weak.  The  low  Minnesota  tax 
can  be  collected.  In  that  State  it  is  just  as  remunerative  as  the 
old  law.  Its  comparative  fairness  at  least,  invites  vigorous  super- 
vision by  the  central  tax  authority.  This  alone  is  highly  impor- 
tant, for  it  may  help  to  bring  the  people  of  a  state  to  a  realization 
of  the  great  need  of  scientific  assessments. 

As  compared  with  their  predecessor,  the  Minnesota  three  mills 
tax  and  the  mortgage  registry  tax  have  been  immensely  success- 
ful and  satisfactory.  That  the  three  mills  tax  works  full  equity 
with  respect  to  persons  cannot  with  full  assurance  be  said.  When 
politics  in  Minnesota  no  longer  stands  in  the  way  of  the  county 
assessor  plan,  a  full  return  of  money  and  credits  may  become  a 
reality;  but  by  that  time  a  total  exemption  of  personalty  or  sub- 
stitution of  income  taxes  may  have  brought  about  a  no  mills  tax 
on  money  and  credits.  (Applause,) 


48  INDIANA   UNIVERSITY 

CHAIRMAN  DUNN:  The  next  paper  is  entitled,  "Defects  in  the 
Taxation  of  Corporations,*'  by  Dr.  Oscar  L.  Pond,  of  Indianapolis. 

DEFECTS  IN  THE  TAXATION  OP  CORPORATIONS 

DR.  OSCAR  L.  POND:  Mr.  Chairman,  ladies  and  gentlemen- 
Some  optimist  has  said  that  to  be  truly  hopeful  is  better  than  to 
arrive,  and  that  true  success  is  to  labor.  I  hope  we  have  all  labored, 
if  we  have  not  arrived,  and  I  think  and  I  hope  we  are  still  travel- 
ing hopefully  on  the  subject  of  taxation. 

With  the  single  exception  of  our  municipal  government,  we  have 
failed  most  completely  with  the  subject  of  taxation;  and  Indiana 
must  now  take  several  steps  in  advance  if  she  would  continue  to 
occupy  a  position  of  leadership  in  taxation,  attained  by  virtue  of 
her  tax  law  of  1891.  Our  problems  of  taxation  are  becoming  more 
complex  with  the  constant  change  and  development  of  our  social, 
economic  and  industrial  conditions;  and  we  must  more  promptly 
and  completely  adjust  our  fiscal  methods  to  pur  more  highly  de- 
veloped civilization. 

The  general  property  tax  is  not  adequate  nor  suitable  for  the 
industrial  and  economic  development  of  today,  and  as  actually  ad- 
ministered it  is  one  of  the  worst  and  most  uniformly  unsuccess- 
ful forms  of  taxation  known  to  an  advanced  civilization  like  our 
own.  Our  general  property  tax  sins  against  both  cardinal  prin- 
ciples of  universality  and  uniformity  in  taxation,  for  every  time 
one  makes  out  his  tax  list  as  required  by  law,  he  necessarily  per- 
jures or  robs  himself,  and  even  then  this  law  fails  to  secure  any- 
thing approaching  uniformity  in  practice.  This  system  is  respon- 
sible for  the  all  too  prevalent  feeling  that  it  is  just  as  legitimate 
to  dodge  taxes  as  death. 

Officials  of  taxation  everywhere  declare  that  instead  of  actually 
taxing  personal  property  the  general  property  tax  becomes  a  tax 
upon  ignorance  and  honesty ;  for  in  practice  it  is  generally  imposed 
upon  those  who  do  not  know  how  to  evade  the  tax  or  are  restrained 
by  a  nice  sense  of  honor  from  doing  so.  It  thus  penalizes  integrity 
and  puts  a  premium  on  perjury;  for  even  the  scrupulously  honest 
taxpayer  cannot  concede  that  he  is  under  obligation  to  pay  other 
men's  taxes,  although,  as  we  all  know,  under  a  fair  system  of 
taxation  where  all  contribute  according  to  their  ability,  practically 
everyone  would  willingly  assume  his  fair  share  of  the  burden 
for  each  would  know  that  all  others  were  paying  their  share. 

We  all  agroo  with  our  state  board  of  tax  commissioners  in  the 


TAXATION   IN   INDIANA  49 

statement  made  in  their  report  for  1912  that  there  is  a  shocking 
lack  of  uniformity  in  the  assessments  of  various  items  of-  personal 
property,  and  that  under  our  law  the  state  board  has  no  way 
of  correcting  such  inequalities.  Bank  stock  is  assessed  at  60  per 
cent,  of  its  market  value  in  one  county  and  at  85  per  cent,  in  an 
adjoining  county ;  while  money  and  credits  are  assessed  at  100  per 
cent.,  or  more  commonly  not  at  all.  While  personalty,  especially 
in  industrial  centers,  constitutes  the  greater  part  of  all  property, 
it  only  pays  a  nominal  part  of  the  taxes,  and  even  a  relatively  de- 
creasing portion,  although  this  form  of  property  is  increasing  out 
of  all  proportion  to  other  property. 

If  we  would  have  personal  property,  and  especially  intangible 
personalty,  pay  its  fair  share  of  taxes,  property  must  be  classified 
for  the  purposes  of  assessment  and  the  sources  of  state  and  local 
revenue  must  be  separated.  It  is  not  possible,  nor  even  reasonable 
to  suppose  that  in  our  present  advanced  civilization  all  property, 
with  its  varied  forms  and  complex  relations,  can  be  reached  for 
purposes  of  assessment  in  the  same  way  or  taxed  by  the  same 
method. 

At  all  times  and  in  all  countries  it  has  been  found  almost  im- 
possible to  list  intangible  personal  property  for  the  purpose  of 
taxation ;  and  the  difficulties  in  obtaining  a  fair  share  of  taxes  from 
this  source  have  been  greatly  extended  and  multiplied  by  the  com- 
plexities attending  the  growth  and  development  of  the  modern 
business  corporation ;  for  in  our  industrial  centers  by  far  the  great- 
er portion  of  all  property  is  in  the  form  of  such  intangible  per- 
sonalty as  corporate  securities.  And  while  as  a  matter  of  fact  real 
estate  and  indeed  most  all  tangible  property,  having  a  fixed  situs, 
may  be  fairly  well  assessed  locally  and  in  the  same  general  way, 
the  vast  and  rapidly  increasing  portion  of  our  wealth  is  in  the 
form  of  intangible  property  which  is  not  and  can  never  be  reached 
for  taxation  under  our  present  system.  This  property  must  be 
assessed  according  to  its  form  and  at  the  place  of  its  investment, 
and  the  tax  collected  at  that  source. 

Let  the  localities,  therefore,  impose  a  tax  sufficient  to  provide 
their  necessary  local  revenue,  on  the  real  property  and  on  the 
tangible  personal  property  belonging  to  individuals,  firms  and  to 
the  local  mercantile,  manufacturing  and  miscellaneous  corpora- 
tions; leaving  the  financial  and  insurance  companies  and  public 
service  corporations,  which  frequently  operate  beyond  the  local 
taxing  jurisdiction  and  are  under  the  direct  control  of  the  State,  to 


50  INDIANA   UNIVEKSITT 

be  assessed  for  taxation  directly  by  the  state  itself  for  the  purpose 
of  providing  the  state  revenue. 

The  inherent  difficulty  of  making  a  fair  valuation  of  the  prop- 
erty and  especially  the  large  portion  of  tangible  property  belonging 
to  public  utilities  as  going  concerns,  with  the  ability  to  earn  and 
actually  earning  a  definite  income  therefrom,  makes  it  impossible 
to  secure  a  fair  and  uniform  assessment  of  such  corporation  by 
local  taxing  officials,  because  their  jurisdiction  is  frequently  more 
limited  than  the  operation  of  the  public  utility  assessed,  and  for 
the  further  reason  that  such  local  officials  have  not  the  expert  assist- 
ance nor  the  funds  at  their  disposal,  necessary  to  make  a  correct 
valuation  of  the  business  as  a  single  operating  entity.  Each  local 
taxing  jurisdiction  would  naturally  assess  in  its  own  way  and  at 
its  own  valuation  a  segregated  portion  of  a  general  system  or  one 
of  many  similar  concerns,  independently  of  the  remaining  portion 
or  of  other  like  utilities,  with  glaring  inequalities  resulting  in- 
evitably. 

The  advantages  of  separating  the  sources  of  state  and  local  rev- 
enue would  consist  not  only  in  furnishing  a  practical  basis  of  class- 
ifying property  for  the  purpose  of  its  assessment  but  in  obviating 
the  necessity  for  boards  of  equalization  which  are  now  required  to 
limit  and,  as  far  as  may  be  possible,  to  overcome  the  natural  ten- 
dency of  each  locality  to  assess  its  property  at  the  minimum  in 
order  to  escape  as  much  state  tax  as  possible — the  state  tax  being 
now  apportioned  according  to  local  assessment  rather  than  local  ex- 
penditure. With  the  sources  of  revenue  completely  separated  each 
locality  would  be  free  to  assess  at  its  own  valuation,  for  the  rate 
would  vary  accordingly  and  this  would  be  entirely  independent  of 
the  state  which  would  levy  upon  other  property,  not  taxed  by  the 
localities,  to  secure  the  necessary  state  revenue;  thereby  securing 
at  the  same  time  greater  freedom  in  fiscal  matters  to  the  localities 
or  more  complete  home  rule  on  questions  pertaining  exclusively  to 
the  revenue  and  expenditure  of  local  government ;  and  also  a  more 
highly  centralized  system  of  taxation  for  the  State  to  secure  its 
revenue  direct. 

Still  more  important,  however,  such  a  separation  of  state  and 
local  revenue  would  permit  of  the  classification  of  property  accord- 
ing to  its  form  and  furnish  practically  a  complete  assessment.  The 
bulk  of  intangible  property  being  corporate  in  form  would  be 

ssed  by  the  State,  which,  having  the  means  for  the  supervision 
or  for  the  valuation  of  these  corporations  already  available  could 
much  more  fairly  and  conveniently  assess  such  concerns  as  single 


TAXATION    IN   INDIANA  51 

entities  or  operating  systems.  The  public  service  commission  has  the 
verified  reports  from  which  with  information  of  its  own  it  is  now 
required  to  make  valuations  of  our  public  utilities;  and  from  such 
data,  indicating  the  extent  of  their  investment,  income  or  earning 
capacity,  the  state  board  of  tax  commissioners  could  easily  and  at 
slight  expense  make  fair,  uniform  and  adequate  assessments  of 
such  corporations,  just  as  they  can  of  financial  institutions  and  in- 
surance companies  from  their  verified  reports  made  to  the  state 
auditor,  and  from  other  information  equally  available. 

Vermont  offers  a  striking  example  of  the  practical  advantages 
to  be  derived  from  a  separation  of  the  sources  of  state  and  local 
revenue,  which  according  to  the  commissioner  of  taxes  has  proven 
entirely  satisfactory;  for  the  aggregate  amount  of  taxes  collected 
from  corporations  has  been  constantly  increasing,  and  has  proven 
altogether  adequate  for  the  increasing  state  expenditures.  This 
plan  was  authorized  in  California  by  constitutional  amendment  in 
1910  and  enforced  by  statutory  enactment  the  following  year,  and 
is  said  to  have  given  entire  satisfaction  to  the  localities  as  well  as 
to  the  state.  In  several  states  including  New  York,  Connecticut, 
Delaware,  New  Jersey  and  Wisconsin  this  principle  is  being  ap- 
plied gradually  by  providing  part  of  the  state  revenue  from  special 
forms  of  taxation,  while  in  Pennsylvania  neither  real  estate  nor 
personal  property  is  taxed  for  the  purpose  of  raising  state  revenue 
which  is  obtained  independently  of  the  local  revenue  from  corporate 
assessments.  Thus  we  find  several  states  seeking  to  avoid  an  un- 
equal distribution  of  our  tax  burdens  by  levying  the  general  prop- 
erty tax  for  local  purposes  and  by  reserving  for  the  use  of  the 
State,  the  revenue  from  the  taxation  of  certain  classes  of  corpora- 
tions. 

This  plan  for  the  separation  of  the  sources  of  state  and  local 
revenue  is  entirely  consistent  with  the  policy  of  the  centralization 
of  administration  which  is  one  of  the  most  characteristic  and  valua- 
ble features  of  our  tax  law  of  1891,  and  it  is  in  keeping  with  the 
general  tendency  in  taxation ;  for  by  virtue  of  this  plan  of  separa- 
tion the  state  is  given  full  power  to  assess  originally  and  to  collect 
its  own  revenue  directly. 

It  would  also  permit  of  any  locality,  desiring  to  do  so,  favoring 
new  industrial  or  manufacturing  concerns  as  is  now  done  in  New 
York,  New  Jersey  and  especially  in  Pennsylvania, 

In  the  edition  of  last  year  of  his  most  excellent  Essays  in 
Taxation  of  Corporations,  Dr.  Seligman  says:  ''Governments  are 
everywhere  confronted  by  the  question,  how  to  reach  the  taxable 


52  INDIANA    UNIVERSITY 

capacity  of  the  holders  of  these  (corporate)  securities,  or  of  the 
associations  themselves.  "Whom  shall  we  tax  and  how  shall  we  tax 
them  in  order  to  obtain  a  substantial  justice?  Perhaps  no  ques- 
tion in  the  whole  domain  of  financial  science  has  been  answered 
in  a  more  unsatisfactory  way.  In  the  United  States  we  have  a 
chaos  of  practice — a  complete  absence  of  principle ;  in  Europe,  with 
the  possible  and  partial  exception  of  England,  the  situation  is 
scarcely,  if  at  all  better.  Moreover,  in  spite  of  the  generally  recog- 
nized need  of  reform,  there  has  thus  far  been  no  comprehensive 
attempt,  from  the  standpoint  of  theory,  to  evolve  order  out  of  the 
chaos  into  which  the  whole  subject  is  plunged." 

While  in  primitive  society  property  may  be  the  best  available 
test  of  ability  in  taxation,  the  true  test  is  always  ability  and  not 
property,  which  is  made  use  of  only  to  measure  tax-paying  ability. 
The  ability  and  the  duty  of  the  owner  of  property  to  support  the 
government  to  the  same  extent  and  for  the  same  reason  that  he  sup- 
ports himself  and  his  family  is  measured  most  fairly  and  accurately 
by  income  or  productive  ability. 

As  society  develops,  economic  and  industrial  conditions  become 
more  complex,  property  and  industry  assume  more  varied  forms, 
and  the  capacity  of  the  individual  or  corporation  can  no  longer  be 
fairly  determined  merely  by  property  ownership.  Whether  a  per- 
son is  supporting  his  family  on  a  salary  income  or  from  property 
investments  he  is  equally  able  and  responsible  for  the  support  of 
the  government.  With  the  more  complex  industrial  development 
of  advanced  civilization  property  becomes  more  varied  in  form 
and  appearance  as  well  as  in  its  earning  capacity;  and  it  is  sub- 
mitted that  the  manner  of  its  assessment  should  change  with  the 
form  of  the  property  being  assessed,  in  order  that  it  may  conform 
most  completely  to  the  particular  class  assessed  and  be  comprehen- 
sive of  all  classes ;  and  also  that  the  earning  capacity  of  the  invest- 
ment or  the  income  of  the  corporation  should  be  the  basis  of  the 
tax. 

As  civilization  advances  the  test  or  measure  of  ability  to  pay 
taxes  must  be  shifted  from  property  to  product  or  income;  and 
this  is  the  reason  for  the  inevitable  failure  of  the  property  tax, 
which,  when  taken  alone,  is  a  crude  method  of  determining  the  abili- 
ty and  defining  the  duty  to  pay  taxes.  Property,  therefore,  must  be 
classified  as  to  its  form  and  productive  capacity  if  we  are  to  have 
a  fair,  uniform  and  comprehensive  system  of  taxation,  based  on 
ability  to  pay  and  universal  in  its  application.  Such  a  system  would 


TAXATION    IN    INDIANA  53 

not  only  secure  a  fair  division  of  the  burdens  of  taxation  but  it 
should  reduce  the  current  tax  rate  one  half,  for  probably  less  than 
half  of  the  earning  capacity  of  property  and  persons  now  pay  all 
the  taxes. 

The  bulk  of  our  intangible  property,  which  has  generally 
escaped  paying  its  fair  share  of  taxes  and  which  is  rapidly  in- 
creasing actually  and  relatively  out  of  all  proportion  to  other  prop- 
erty, especially  as  to  its  earning  capacity,  is  invested  or  deposited 
with  corporations.  The  general  tendency  and  natural  effect  of 
corporate  investment  is  to  concentrate  property  for  the  purpose  of 
increasing  its  earning  capacity ;  thereby  collecting  into  a  relatively 
few  business  organizations  or  industrial  systems,  practically  all  of 
the  intangible,  together  with  a  large  portion  of  the  tangible  prop- 
erty. 

The  small  number  of  corporations  as  compared  to  the  large  num- 
ber of  owners  of  their  securities  affords  a  most  compelling 
argument  of  convenience  and  economy  for  the  taxation  of  the  cor- 
poration rather  than  its  securities  in  the  hands  of  their  numerous 
and  widely  scattered  owners  many  of  whom  are  never  found,  so 
that  the  portion  who  are  taxed  are  required  to  pay  in  addition  to 
their  own  fair  share  of  taxes  an  even  greater  amount  which  be- 
longs to  the  owners  of  those  securities  which  are  not  returned, 
with  a  resultant  rate  of  taxation  imposed  on  that  portion  actually 
paying,  frequently  approaching  the  earning  capacity  of  the  securi- 
ty itself.  By  taxing  all  such  intangible  property  at  its  source  or 
the  place  of  its  investment,  the  expense  and  difficulty  of  assessing 
and  collecting  the  tax  would  be  reduced  to  a  minimum  and  the 
tax  could  be  practically  uniformly  levied  and  universally  collected, 
with  the  result  that  the  rate  could  be  reduced  one  half.  In  other 
words,  let  us  take  the  income  or  earning  capacity  of  the  corpora- 
tion as  the  measure  of  its  duty  and  ability  to  pay  taxes  and  not 
attempt  the  impossible  and  inequitable  assessment  of  its  stock  or 
property  as  such,  especially  when  so  much  of  the  property  is  in- 
tangible in  form  and  so  incapable  of  assessment  except  on  the  basis 
of  income  or  earning  capacity. 

The  earning  capacity  of  these  corporate  investments  is  deter- 
mined by  the  integrity  and  efficiency  of  the  organization  issuing 
them,  depends  upon  its  operating  as  a  single  entity  or  as  an  integral 
part  of  an  industrial  system ;  and  only  as  such  can  they  be  fairly 
and  completely  reached  for  purposes  of  taxation.  The  earnings  of 
>such  corporations  assessed  as  received  by  them  as  single  operating 


54  INDIANA    UNIVERSITY 

or  going  concerns  rather  than  the  valuation  of  their  property,  as 
determined  by  a  number  of  local  taxing  officials  often  working  inde- 
pendently of  each  other,  determines,  more  conveniently  and  econom- 
ically as  well  as  far  more  accurately,  the  proper  tax  for  each 
corporation.  Earnings  furnish  a  far  more  definite  and  convenient 
measure  of  tax  paying  ability  than  capital  stock  or  property  valua- 
tion where  much  of  the  property  is  intangible,  and  so  incapable  of 
valuation  except  as  it  is  measured  and  determined  by  the  earning 
capacity  or  income  derived  from  its  use  in  the  business  of  the  cor- 
poration. 

It  is  only  by  taking  earnings  or  income  for  the  measure  of  the 
value  of  the  intangible  property  involved  that  the  many  forms 
of  corporate  excess  or  franchise  assessments  of  corporations  can  be 
determined  with  any  degree  of  accuracy  or  fairness.  The  franchise 
tax,  as  distinguished  from  the  fee  paid  for  the  privileges  of  in- 
corporation, is  necessarily  an  arbitrary  assessment  unless  it  is 
fixed  in  proportion  to  the  value  or  earning  capacity  of  the  intangi 
ble  property  in  addition  to  the  actual  valuation  of  tangible  proper- 
ty; and  as  the  only  practical  measure  of  intangible  value  is  its 
earning  capacity  the  franchise  tax  unless  arbitrarily  assessed  is 
in  fact  a  tax  based  on  or  measured  by  earnings  or  income.  There 
is  economically  no  justification  for  a  franchise  tax  that  is  not  in 
effect  a  tax  of  the  intangible  property  or  its  income,  for  the  priv- 
ilege of  becoming  a  corporation  and  acting  as  such  is  logically  paid 
for  at  the  time  of  incorporation.  A  tax  on  corporations  measured 
by  corporate  income  should  include  every  subject  of  taxation  that 
is  legitimately  taxable  from  the  economic  point  of  view,  for  income 
covers  all  property  and  reflects  all  value  necessarily  and  properly 
belonging  to  the  corporation. 

As  income  or  earning  capacity  determines  the  value  of  the  prop- 
erty belonging  to  corporations  and  furnishes  the  best  measure  of 
tax  paying  ability  why  not  tax  it  as  such  or  use  it  directly  as  the 
measure  of  value  in  assessing  such  property?  It  is  fixed  and  defi- 
nite, not  susceptible  of  evasion,  easily  and  conveniently  ascertained 
at  slight  expense  to  the  state  as  well  as  to  the  corporation  itself, 
and  furnishes  a  fair  practical  basis  of  assessment. 

As  Dr.  Seligman  in  his  Essays  in  Taxation  observes:  "The 
value  of  the  franchise  from  the  economic  point  of  view  consists  in 
the  earning  capacity  of  the  corporation.  This  is. the  real  basis  of 
all  taxation  and  can  best  be  gauged  by  the  amount  of  business  done. 
*  *  *  In  an  economic  sense  the  franchise  tax  means  nothing 


TAXATION   IN   INDIANA  55 

at  all.  It  is  so  utterly  indefinite  that  it  defies  exact  analysis.  How- 
ever valuable  it  may  be  to  the  lawyer  in  the  effort  to  evade  certain 
constitutional  restrictions,  to  the  student  of  the  science  of  finance 
it  is  a  useless  conception." 

Our  present  day  system  of  corporate  accounting  and  of  state 
and  federal  regulation  and  control  of  corporations  has  greatly  sim- 
plified and  facilitated  their  taxation  according  to  income  or  earning 
capacity.  Because  of  the  nature  of  their  investments  and  the  varie- 
ty of  the  forms  of  their  property  as  well  as  the  special  privileges 
and  obligations  of  public  utilities,  their  taxation  by  the  state  ac- 
cording to  their  income,  received  within  the  state,  affords  the  only 
adequate  method,  that  is  at  once  simple  and  comprehensive,  of 
fairly  and  definitely  assessing  at  least  the  intangible  property  and 
its  productive  ability  of  these  public  service  corporations,  which  are 
seldom  local  and  often  interstate  in  their  relations  and  operations. 

Much  of  the  property  or  capacity  for  earnings  of  public  utili- 
ties is  not  represented  by  tangible  property,  and  there  seems  to  be 
a  general  tendency  to  abandon  property  in  favor  of  gross  earn- 
ings or  receipts  as  the  basis  of  their  taxation,  because  the  necessary 
facts  are  readily  available  and  the  plan  is  simple  and  definite, 
which  goes  far  to  avoid  the  inaccurate  and  arbitrary  features  which 
at  times  characterizes  our  present  system  or  the  lack  of  any  fixed 
rules  of  assessment.  In  these  cases  publicity  and  a  well  defined 
system,  easily  administered  and  understood  by  all  concerned,  is 
the  best  precaution  against  inaccuracy,  unfairness  and  suspicion. 

As  these  corporations  are  subject  to  regulation  by  the  State 
as  to  rates  as  well  as  service,  the  facts  as  to  their  earnings  are  al- 
ways available  to  the  State,  and,  as  under  a  system  of  taxation 
based  on  or  measured  by  their  income,  the  amount  of  their  taxes 
would  vary  with  their  income  as  determined  by  the  rate  regulation 
of  the  State,  so  where  only  a  fair  return  on  the  actual  value  of 
their  property  was  received  the  tax  would  be  fixed  and  limited 
according  to  their  income,  and  should  not  include  a  franchise  or 
excise  tax  in  addition  thereto. 

While  the  net  earnings  tax  may  be  the  most  logical  form  for 
the  taxation  of  corporations,  as  theoretically  it  is  perfectly  propor- 
tional to  productive  capacity,  the  gross  earnings  tax  was  recom- 
mended by  a  special  committee  of  state  railroad  commissioners, 
which  as  early  as  1878  reported  that:  "The  requisites  of  a  correct 
system  of  a  railroad  as  of  other  taxation  are  that  it  should,  so  far 
as  it  is  possible,  be  simple,  fixed,  proportionate,  easily  ascertainablo 


56  INDIANA    UNIVERSITY 

and  susceptible  of  ready  levy.  *  *  *  The  conclusion  at  which 
your  committee  arrived  was  that  all  the  requisites  of  a  sound  sys- 
tem were  found  in  taxes  on  real  property  and  on  gross  receipts, 
and  in  no  others." 

An  exhaustive  report  of  a  special  commission  for  Connecticut 
on  the  taxation  of  corporations  issued  last  year  declared  in  favor 
of  the  gross  earnings  tax  by  saying  that:  "The  earnings  of  a 
corporation  are  the  real  basis  of  the  value  of  its  property,  the 
value  of  its  securities,  and  its  tax  paying  ability.  This  statement 
will  generally  be  admitted  at  once,  and  it  is  also  demonstrated  by 
the  result  of  the  experience  of  other  methods  of  taxing  corpora- 
tions. As  a  matter  of  theory,  the  earnings  of  a  corporation  are 
the  only  true  measure  of  its  value  and  its  tax  paying  ability.  The 
basis  of  earnings  is  also  the  simplest  in  practice  and  the  one  that 
involves  the  least  administrative  difficulty.  *  *  *  The  practical 
difficulties  in  the  way  of  imposing  a  tax  upon  net  earnings  seems 
overwhelming.  *  *  *  The  gross  earnings  tax,  therefore,  has  the 
great  advantage  of  simplicity,  certainty,  and  ease  of  administra- 
tion." 

This  is  the  position  taken  by  the  Ontario  Commission  of  1895, 
by  the  California  Commission  of  1906  and  by  those  of  Virginia 
and  Rhode  Island  of  1911.  Dr.  Seligman,  while  ardently  favoring 
the  net  earnings  system  as  the  ideal  one  which  he  hopes  may  be  at- 
tained generally  later  under  a  better  system  of  corporate  account- 
ing says  that:  "As  a  matter  of  practical  wisdom  it  may  be 
conceded,  however,  that  in  not  a  few  of  the  American  States  sim- 
plicity and  convenience  of  administration  are  preferable  to  more 
ideal  but  more  difficult  methods." 

The  Rhode  Island  law  of  1912  provides  that  intangible  per- 
sonalty of  public  service  corporations  shall  be  reached  through  a 
tax  based  on  gross  earnings,  and  that  of  mercantile,  manufacturing 
and  miscellaneous  (chiefly  financial)  companies  through  a  tax 
based  on  corporate  excess.  These  taxes  are  in  lieu  of  all  other 
taxes  against  intangible  personalty  either  to  the  corporation  or  to 
the  holder  of  its  securities.  From  the  standpoint  of  ease  of  admin- 
istration and  the  production  of  revenue,  their  board  of  tax  com- 
missioners has  found  that  this  tax  on  gross  earnings  for  public 
utilities  has  met  every  expectation.  This  gross  receipts  method  of 
taxation  is  employed  exclusively  or  in  part  in  nineteen  states  for 
the  taxation  of  telegraph  companies ;  in  twenty  states  for  telephone 
companies;  in  twenty-four  states  for  express  companies;  in  fifteen 


TAXATION   IN   INDIANA  57 

states  for  parlor  a*nd  sleeping  car  companies;  in  ten  states  for 
street  railways;  in  at  least  eight  for  railway  companies;  and  in 
twelve  for  gas,  electric  light,  heat  or  power  companies. 

Under  this  system  of  taxation,  which  continues  to  become  more 
general,  of  course,  it  is  necessary  to  classify  corporations  with  re- 
spect to  the  prevailing  ratio  of  their  net  to  their  gross  earnings  and 
to  impose  different  rates  upon  the  gross  earnings  of  corporations 
according  to  this  classification.  It  is  said  that  the  ratio  of  net  to 
gross  earnings  is  fairly  uniform  for  railroads,  express,  telegraph, 
telephone  and  most  all  public  utilities,  each  of  which  are  classified 
accordingly;  and  the  prevailing  ratio  for  each  class  having  been 
determined,  the  rates  are  graduated  according  to  the  fixed  ratio. 
This  rate  should  be  equivalent  to  that  imposed  on  other  forms  of 
property  or  income  in  determining  their  tax  paying  ability  and 
duty. 

As  such  corporations  often  become  interstate  in  the  scope  of 
their  operation  or  distribution  uniformity  of  taxation  among  the 
states  is  essential  to  a  fair  and  uniform  distribution  of  the  tax 
burden,  and  in  view  of  the  large  number  of  states  that  have  ac- 
cepted or  in  which  has  been  recommended  the  gross  earnings  sys- 
tem of  taxation  for  these  corporations  it  affords  the  most  likely 
means,  as  it  would  seem  to  be  the  most  practical  method  for  secur- 
ing in  interstate  as  well  as  in  state  and  local  fields,  uniformity  in 
taxation.  Every  state  should  tax  the  income  of  all  corporations 
actually  earned  within  the  state  and  only  such  earnings. 

While  not  intending  to  encroach  upon  the  question  of  the  state 
constitutional  changes  necessary  to  improve  our  system  of  taxation, 
which  has  been  assigned  to  Commissioner  Wolcott,  it  is  pertinent 
and  I  trust  permissible  in  this  connection  to  note  that  the  United 
States  Supreme  Court  in  its  decision  of  two  years  ago  of  the  case 
of  United  States  Express  Co.  vs.  Minnesota,  reported  in  223  U.  S. 
335,  declared  valid  a  tax  of  six  per  cent,  imposed  by  the  laws  of 
Minnesota  upon  the  gross  receipts  for  business  done  in  that  state 
by  the  United  States  Express  Company  which  was  in  lieu  of  all 
other  taxes  on  the  property  of  the  company,  because  the  court 
found  this  to  be  a  fair  means  of  assessment  and  an  entirely  proper 
method  of  taxing  such  company,  although  some  of  the  receipts  in 
question  were  the  proceeds  of  interstate  commerce.  The  constitu- 
tionality of  an  income  or  earning  tax  in  lieu  of  other  property  taxes 
as  a  federal  question  is  therefore,  well  established,  so  that  such  a 
tax  is  legally  as  well  as  economically  sound.  (Applause.) 


58  INDIANA  UNIVERSITY 

DISCUSSION 

CHAIRMAN  DUNN:  We  now  come  to  the  discussion  of  this  in- 
teresting paper,  to  be  lead  by  Dr.  Frank  T.  Stockton,  of  Indiana 
University. 

DR.  FRANK  T.  STOCKTON:  Mr.  President,  ladies  and  gentle- 
men— It  is  obviously  impossible  for  anyone  to  discuss  both  of  these; 
papers  in  the  brief  time  that  is  allotted  to  me,  and  I  have  there- 
fore limited  my  remarks  to  the  paper  presented  by  Dr.  Phelan  on 
'  *  The  Taxation  of  Money  and  Credits  in  Minnesota, ' '  not  with  any 
idea  of  throwing  more  light  on  the  Minnesota  situation  but  rather 
with  the  idea  of  treating  of  certain  phases  of  the  classification  sys- 
tem. It  would  seem  that  Minnesota's  experience  affords  good 
evidence,  that  there  is  something  better  than  the  general  property 
tax.  Under  the  system  described  the  number  of  persons  assessed 
for  money  and  credits,  the  total  amount  of  such  property  returned 
and  the  revenue  to  the  State  have  all  been  greatly  increased  within 
a  comparatively  short  time.  Not  only  has  the  system  apparently 
been  a  fiscal  success  but  perjury  has  greatly  decreased  and  the 
public  morals  consequently  uplifted. 

In  other  states  where  the  same  plan,  or  something  similar,  has 
been  tried  the  same  results  appear.  Maryland,  in  1896  provided 
for  a  uniform  local  rate  of  30  cents  on  the  $100  on  corporate  bonds 
and  the  certificates  of  indebtedness  and  the  stocks  of  foreign  cor- 
porations, plus  a  state  rate  of  17f  cents.  These  rates  were  to  be 
paid  in  lieu  of  other  taxes.  In  Baltimore  City,  for  which  statistics 
alone  are  available,  the  assessment  of  securities  in  1895  showed 
a  return  of  only  $6,000,000  in  round  numbers.  The  reassessment 
of  1896  resulted  in  a  return  of  $58,703,795.  By  1905  the  assess- 
ment  netted  $104,221,227;  by  1913,  $191,970,999.  These  results 
.have  been  attained  in  spite  of  the  fact  that  recently  the  State  tax 
was  raised  to  31  cents,  a  figure  to  which  objection  has  properly 
been  made  on  the  ground  that  "the  total  taxes  are  too  high  and 
that  the  good  effect  intent  of  the  law  was  lost."  No  one 
claims  that  even  now  all  Baltimore  holdings  of  securities  are  listed. 
Fear  that  the  State  would  raise  the  rate,  as  has  been  done,  has  nc 
doubt  kept  many  persons  from  making  proper  returns.  Again 
Maryland  suffers  from  an  inadequate  system  of  tax  administration 
which  makes  the  situation  still  more  difficult.  This  handicap,  how- 
ever, would  seem  to  be  one  that  can  be  easily  removed.  As  it  is, 
both  the  amount  of  property  assessed  and  the  revenue  obtained 


TAXATION    IN   INDIANA  59 

have  been  greatly  increased,  this,  too,  in  a  greater  proportion  than 
the  gain  in  population  or  wealth. 

As  indicated  by  Dr.  Phelan,  Minnesota  has  followed  New  York 
in  imposing  a  mortgage  recording  tax.  In  some  quarters  this 
method  of  taxation  has  been  criticized  on  the  ground  that  long  term 
mortgages  are  unduly  favored  thereby.  However,  the  mortgage 
recording  tax  may  be  looked. at  as  merely  a  fee  covering  the  cost 
of  service.  The  expense  of  recording  a  mortgage  running  for  one 
year  is  equally  great  with  that  of  a  mortgage  running  twenty-five 
years.  Minnesota,  however,  has  imposed  a  higher  rate  for  long- 
term  than  for  short-term  mortgages.  In  New  York  the  rate  is 
one-half  of  one  per  cent  for  all  mortgages.  It  produced  in  1913 
$3,704,648.90.  In  this  connection  it  might  be  pointed  out  that  it 
is  being  urged  by  Congressman  Moss  who  has  been  investigating 
the  question  of  rural  credits,  that  the  first  step  for  the  benefit  of 
the  Indiana  farmer  who  wishes  to  borrow  money  secured  by  his 
real  estate,  should  be  the  abolition  of  our  present  tax  on  mortgages 
under  the  general  property  tax  and  the  substitution  of  a  mortgage 
recording  tax  at  a  low  rate.  It  is  well  understood  by  all  students 
of  taxation  that  taxes  on  mortgages  tend  to  be  shifted  upon  the 
shoulders  of  the  borrower. 

The  subject  of  the  taxation  of  credits  affords  an  interesting 
field  for  the  study  of  double  taxation.  It  can  be  fairly  demon- 
strated that  credits  should  not  be  taxed  as  they  are  only  repre- 
sentative wealth  or  the  * '  shadow ' '  of  wealth.  Credits  create  no  new 
property  as  for  every  credit  there  is  a  corresponding  debit.  Pub- 
lic sentiment,  however,  at  least  in  Indiana,  does  not  seem  content 
to  accept  the  view  that  intangible  wealth  should  go  tax  free.  On 
the  other  hand,  it  is  unjust  that  the  owner  of  a  security  should 
pay,  as  at  present,  from  40  to  90  per  cent  on  the  income  from  such 
security.  Any  person  in  Bloomington  owning  a  taxable  bond  bear- 
ing 4  per  cent,  interest  would  find  it  advisable  to  give  such  in- 
strument to  charity  provided  it  was  assessed  for  its  full  value 
under  the  present  rate  of  $4.82.  No  personal  property  tax  can  be 
collected  which  is  excessive,  much  less  if  it  is  confiscatory.  As 
between  exemption  and  confiscation  there  is  a  middle  ground  which 
is  adaptable  as  a  practicable  program  of  reform.  To  adopt  the 
classification  system  with  a  low  rate  on  intangibles  does  not  mean 
unfair  concessions  to  capital  or  a  decrease  in  revenue.  Its  adoption 
does  mean  a  closer  observance  of  the  two  great  canons  of  taxation, 
namely,  equality  and  productivity.  The  present  general  property 


60  INDIANA    UNIVERSITY 

tax  by  reason  of  the  incentive  to  evasion  offered  under  it,  has  very 
properly  been  called  a  "tax  on  ignorance  and  honesty."  In  taxes, 
just  as  in  railway  rates,  we  must  consider  "what  the  traffic  will 
bear."  The  observance  of  this  principle  has  gone  far  in  making 
our  internal  revenue  system  a  success.  The  failure  to  observe  it, 
has  made  the  general  property  tax  a  national  disgrace. 

In  conclusion,  it  might  be  said  that  a  good  deal  of  light  could 
be  shed  upon  the  assessment  of  money  and  credits  in  Indiana,  if, 
in  the  abstract  of  the  tax  duplicate  compiled  by  the  State  Board  of 
Tax  Commissioners,  such  property  were  listed  separately.  Instead 
of  this  being  the  case,  in  1910,  money  and  credits  were  listed  under 
the  item,  * '  True  Value  of  Personal  Property. ' '  In  1912  the  inter- 
pretation of  the  duplicate  was  further  obscured  by  combining  per- 
sonal and  corporation  property  under  one  head.  As  I  understand 
it  this  latter  arrangement  was  required  by  the  State  Board  of 
Accounts  and  was  not  due  to  the  State  Board  of  Tax  Commission- 
ers. 

The  "true  value  of  personal  property"  reported  in  1910  was 
$434,841,995.  This  included  personal  property  both  tangible  and 
intangible.  On  September  30th,  of  the  same  year,  bank  deposits 
alone,  according  to  the  reports  of  the  State  Auditor  and  the  con- 
troller of  the  currency,  amounted  to  $258,485,596.95.  Other  kinds 
of  personalty  besides  bank  deposits,  are  merchandise  stocks,  banks, 
secured  and  unsecured  debts,  farm  products  and  machinery,  house- 
hold goods  and  money  on  hand.  Even  allowing  for  uniform  under- 
assessment on  all  kinds  of  property,  it  is  evident  that  when  the 
bank  deposits  of  the  state  alone  constitute  68  per  cent,  of  the  value 
of  all  kinds  of  personalty  as  assessed,  the  amount  of  evasion  must  be 
very  great.  The  complaints  of  the  county  assessors  at  their  annual 
conference  about  the  escape  of  intangibles  and  the  employment  of 
"tax  ferrets"  are  further  evidences  of  this  fact.  The  present  sys- 
tem in  Indiana,  it  would  seem,  could  hardly  be  enforced  as  the  law 
intends  by  the  most  God-fearing  state  board  of  tax  commissioners 
on  earth.  (Applause.) 

CHAIRMAN  DUNN  :  The  paper  is  now  open  for  general  discus- 
sion, if  anybody  desires  to  discuss  it. 

MR.  DAN  M.  LINK  :  Mr.  President  and  gentlemen— I  think  that 
there  is  a  general  misapprehension  existing  in  the  minds  of  nearly 
everyone  concerning  the  amount  of  so-called  intangible  property 
escaping  taxation.  Figures  do  not  lie,  bat  they  are  often  misin- 
terpreted. Now  the  total  amount  of  money  on  deposit  in  the  banks 


TAXATION  IN  INDIANA  61 

in  the  State  of  Indiana  on  the  first  day  of  March  is  not  a  true 
criterion,  or  measure,  of  the  total  amount  of  money  in  the  State  of 
Indiana  subject  to  taxation  on  the  first  day  of  March.  I  know 
it  is  the  general  custom  to  assume  that  if  the  banks  of  a  city  have 
on  the  first  day  of  March  a  million  dollars  in  deposits  that  it  all 
should  be  upon  the  tax  list.  Nothing  could  be  farther  from  the 
truth,  because  if  it  were  all  given  in  for  taxation  a  large  propor- 
tion of  it — the  exact  ratio  of  course  I  do  not  know — would  be 
covered  by  deposits  of  corporations,  various  governmental  agencies 
and  others,  whose  money  is  not  subject  to  direct  taxation. 

For  instance,  the  method  of  assessing  a  mercantile  or  any  other 
sort  of  corporation  in  this  state,  outside  of  the  utility  corporations 
assessed  by  the  State  Board,  is  to  assess  them  upon  their  tangible 
property,  and  then  upon  their  corporate  statement  filed  with  the 
Board  of  Review.  There  is  an  estimate  made,  or  an  examination 
rather,  to  ascertain  whether  the  total  wealth  of  the  corporation  is 
in  excess  of  the  tangible  property  returned.  If  it  is,  there  is  what 
is  known  as  a  corporate  excess,  and  that  is  assessed  by  the  Board 
of  Review. 

Now  we  know,  as  a  matter  of  fact,  that  a  very  large  proportion 
of  the  funds  in  the  hands  of  the  banks  in  this  state  are  funds  owned 
by  corporations  which  are  not  assessed  separately  and  distinctly 
from  the  excess.  In  addition  to  that  the  funds  in  the  hands  of 
the  banks  which  are  deposited  by  townships,  towns,  cities,  coun- 
ties, and  other  institutions  which  are  a  part  of  the  governmental 
agencies  of  the  state,  are  not  subject  to  taxation ;  and  those  amount 
to  a  very  large  sum,  a  very  large  sum  indeed.  How  much  we  are, 
of  course,  unable  to  ascertain  because  we  have  no  data  from  which 
we  could  make  these  figures,  but  I  think  it  is  well  to  take  that  into 
consideration  for  the  reason  that  we  are  likely  to  assume,  and  I 
think  as  a  general  rule  do  assume,  that  all  the  money  in  the  banks 
over  and  above  that  which  can  be  shown  to  be  upon  the  tax  list, 
is  escaping  taxation ;  and  I  do  not  think  that  is  true. 

Now  there  is  another  feature  of  the  papers  that'have  been  read 
here,  and  the  discussion  of  Professor  Stockton,  in  regard  to  tax 
ferrets.  Of  course  I  think  if  he  meant  to  make  the  statement  that 
the  state  does  employ  tax  ferrets,  he  is  in  error,  and  the  statement 
is  erroneous.  Not  only  does  the  state  not  employ  any  tax  ferrets, 
or  any  one  whose  duty  approximates  that  of  a  tax  ferret,  but  there 
is  no  law,  there  is  no  governmental  agency  in  this  state  to  employ 
tax  ferrets,  except  upon  a  very  limited  scale,  and  for  purposes 


62  INDIANA    UNIVERSITY 

which  are  beyond  the  duties  of  any  local  township  or  county  as- 
sessor. 

Now,  referring  to  this  administrative  feature  in  regard  to  the 
ability  of  the  tax  commissioners  in  the  states  of  Minnesota  and 
Indiana  and  other  states  to  secure  proper  assessments,  I  was  very 
much  pleased  at  the  cognizance  which  was  taken  of  these  difficulties 
by  the  gentleman  from  Minnesota  and  by  Professor  Stockton  and 
by  Dr.  Pond ;  because  when  the  State  of  Ohio  went  upon  the  full 
valuation  scheme  two  years  ago,  with  what  was  thought  at  the  time 
to  be  the  very  best  sort  of  machinery  that  could  be  devised,  and 
with  all  the  enthusiasm  indicated  by  the  gentleman  who  spoke  upon 
the  subject  this  morning,  it  was  found  that  in  order  to  secure  any- 
thing like  a  uniform  assessment,  or  full  value  assessment,  it  was 
necessary  to  entirely  re-vamp  and  reorganize  their  administrative 
machinery;  and  they  have  done  this  by  just  wiping  out  all  sorts 
of  assessors  and  substituting  therefor  in  counties  under  sixty-five 
thousand  population  the  deputy  of  the  State  Board  of  Tax  Commis- 
sioners with  exclusive  authority  to  assess  all  property  in  the  county, 
and  organize  as  a  bureau  for  that  purpose  two  experts,  their  terms 
being  unlimited,  their  compensation  being  fixed. 

In  counties  having  a  population  of  more  than  sixty -five  thou- 
sand they  have  two  deputy  tax  commissioners  who  are  not  to  be 
of  the  same  politics. 

Now,  of  course,  we  don't  know  how  that  is  going  to  work  out, 
because  they  have  not  yet  gone  through  an  assessment.  Experi- 
ence will  demonstrate  whether  that  is  a  solution  of  the  problem,  or 
not.  It  will  very  nearly  demonstrate,  as  I  said  this  morning,  the 
utility  of  the  general  property  tax.  But  it  has  demonstrated  one 
thing  to  the  satisfaction  of  every  person  who  has  had  actual  ex- 
perience in  the  operation  of  assessment  laws,  and  that  is  that  you 
cannot  regulate  from  the  top  down.  You  have  got  to  regulate  from 
the  bottom  upward,  and  only  theorists  contend  otherwise. 

Now  I  do  not  want  to  go  beyond  the  range  of  the  papers  that 
were  read  by  these  gentlemen  this  afternoon,  and  the  discussion 
inaugurated  by  Professor  Stockton,  but  I  think  it  is  appropriate 
here,  in  view  of  the  unrestrained  expression  of  the  gentleman  who 
led  the  discussion  this  forenoon  upon  the  papers  that  were  then 
read,  to  say  that  there  is  so  wide  a  latitude  between  theory  and 
practice  in  taxation  that  we  may  be  led  away  by  our  enthusiasm 
for  the  study  of  the  theory  of  taxation.  If  we  could  make  the 
moon  stand  still,  or  the  waves  recede,  by  legislative  enactment,  or 
by  a  ukase  delivered  by  the  State  Board  of  Tax  Commissioners, 


TAXATION   IN   INDIANA  63 

all  these  difficulties  that  we  are  now  discussing  would  not  exist; 
because  we  would  cure  them  by  an  imperial  edict. 

But  taxation  is,  in  the  last  analysis,  the  most  practical  thing 
there  is  in  any  function  of  the  government.  It  has  less  theory  in 
it,  and  there  is  more  downright  common  sense  necessary  to  its 
utility  and  successful  operation  than  any  other  function  that  the 
government  is  called  upon  to  assume;  and  so  we  may  assume,  I 
think  justly,  that  in  1892,  after  this  very  good  law,  the  best  law 
that  had  ever  been  passed  up  to  tha,t  date,  was  enacted  by  our  legis- 
lature, under  the  leadership  of  that  great  jurist,  Judge  Howard, 
and  with  the  active  assistance  of  our  distinguished  friend  here  who 
is  now  presiding,  that  when  the  man  who  then  occupied  the  Gov- 
ernor's chair,  and  had  surrounded  himself  with  able  advisors  and 
colleagues  upon  the  Board  of  Tax  Commissioners  who  after  due 
deliberation,  with  the  intensest  desire  to  secure  the  best  results, 
determined  upon  a  method  of  assessment  at  that  time — I  say,  not- 
withstanding the  advice  of  our  friend,  that  we  have  a  good  right  to 
presume  that  that  was  done  with  a  very  full  knowledge  of  the  con- 
dition of  affairs  which  not  only  existed  then  but  which  has  existed 
from  that  day  to  this.  Twenty-three  years  have  elapsed.  That 
distinguished  Governor  and  his  colleagues  on  the  Board  have  been 
succeeded  by  other  Governors  just  as  distinguished,  and  by  col- 
leagues who  have  not  been  entirely  devoid  of  reasoning  powers; 
and  from  that  day  to  this  there  has  been  in  their  way  a  practical 
difficulty  which  only  poets,  with  the  license  which  poets  and  gen- 
iuses have,  cannot  understand.  But  it  was  a  situation  which  had 
to  be  met  by  practical  men.  And  today,  speaking  in  behalf  of 
my  colleagues  and  myself  who  now  constitute  the  State  Board,  I 
want  to  say  that  we  have  a  full  sense  and  realization,  the  Tax  Com- 
mission has  a  full  sense  and  realization  of  the  difficulties  in  the 
present  system  of  assessment.  We  realize,  and  so  reported  to  the 
Legislature  in  1912,  that  the  assessment  of  property  at  less  than 
its  true  cash  value  was  like  a  ship  at  sea,  without  rudder  or  com- 
pass, that  it  was  indefensible  from  any  standpoint ;  and  we  prayed 
the  Legislature  to  assist  us  in  -bringing  about  some  sort  of  a  reor- 
ganization by  following  the  example  of  Ohio  which  limited  its  tax 
levy  to  ten  mills  for  all  purposes,  or  the  example  of  Illinois  which 
spread  the  levy  upon  one-third  of  the  total  assessment  made.  The 
Legislature  did  not  see  fit  to  make  any  changes  at  that  session, 
and  consequently  we  have  still  that  situation  upon  our  hands,  a 
matter  which  has  been  given  more  attention,  which  has  caused  the 
Governor  a  great  deal  of  concern,  and  which  has  not  yet  been 


64  INDIANA   UNIVERSITY 

worked  out ;  because,  as  you  know,  our  assessment  of  real  property 
is  made  but  once  in  four  years,  and  it  is  humanly  impossible,  and  if 
it  were  not  so  it  would  be  entirely  unjust  within  the  period  of  four 
years,  after  the  assessment  of  real  property  has  been  ultimately  and 
finally  fixed  for  that  quadrennial  period,  then  to  undertake  to 
raise  all  other  classes  of  property  to  its  true  cash  value.  So  that 
the  power  and  the  reason  for  raising  property  to  its  true  cash 
value  from  the  time  the  real  estate  is  assessed  at  one  period  until 
the  next  assessing  period,  which  would  be  in  1915,  is  entirely 
wanting. 

Now  what  will  be  done  in  1915  depends  upon  conditions  which 
should  be  studied  and  considered  with  the  gravest  care  by  the 
distinguished  gentleman  who  now  occupies  the  Governor's  chair 
and  by  the  gentlemen  occupying  the  positions  of  Secretary  of 
State  and  Auditor  of  State,  who  are  ex-officio  members  of  the 
State  Board  of  Tax  Commissioners,  and  the  three  Commissioners. 
I  believe  I  can  say  of  my  colleagues,  whatever  may  be  said  by  my 
friend,  that  they  rob  neither  widows  n'or  orphans  intentionally  or 
knowingly,  and  they  have  no  desire  whatever  to  shirk  any  respon- 
sibility which  rests  upon  them;  but  they  are  in  a  position  where 
they  are  compelled  to  meet  practical  questions  with  practical  com- 
mon sense,  and  not  with  theory  or  force. 

That  is  the  situation,  gentlemen,  which  all  who  have  had  prac- 
tical experience  in  the  operation  of  taxing  laws  are  continually 
bound  to  meet;  and  this  criticism  which  may  come  and  has  come  to 
gentlemen  who  have  had  such  experience,  and  had  such  burdens 
imposed  upon  them,  is  common.  Of  course,  I  presume  we  must 
suffer  under  such  criticism  so  long  as  the  taxing  question  remains 
in  the  position  and  in  the  condition  it  is  now,  where  nobody  is 
entirely  satisfied  with  what  we  have,  and  so  many  would  rather 
fly  into  ills  we  know  not  of.  (Applause.) 

CHAIRMAN  DUNN:  Is  there  any  further  discussion?  Would 
any  other  gentleman  like  to  be  heard? 

MB.  H.  J.  MILLIGAN,  of  Indianapolis:  Mr.  Chairman — I  am 
what  was  called  in  The  Mikado  a  "terrified  amatoor,"  and  I  have 
dropped  in  here  in  that  capacity.  I  want  to  express,  more  than 
anything  else,  the  high  appreciation  that  I  have  of  the  scope  of 
the  papers  that  have  been  read  here  today.  Without  having  come 
in  contact  with  the  Tax  Commissioners,  I  have  been  inclined  to  look 
upon  them  as  fiery  advocates  of  taxation  at  any  price,  or  by  any 


TAXATION    IN    INDIANA  65 

method;  and  I  must  say  that  the  papers  that  have  been  read  by 
the  ex-commissioner  and  by  the  acting  commissioner  have  con- 
vinced me  that  this  subject  is  receiving  consideration  in  the  broad- 
est and  fairest  manner. 

Now,  in  the  very  interesting  paper  of  the  morning  by  Mr. 
Sims,  it  was  stated  that  the  deposits  in  banks  in  Indiana  were  three 
hundred  millions  of  dollars,  I  believe  it  was.  Mr.  Link  has  very 
properly  said  that  a  great  deal  of  that  money,  under  any  system 
that  is  proposed,  would  not  be  taxable  because  it  belongs  to  cor- 
porations. I  think  if  the. word  goes  out,  as  it  would,  that  there 
are  three  millions  of  dollars  in  Indiana  that  ought  to  be  taxed  that 
is  not  taxed  it  would  create  almost  a  sensation.  But  that  is  not 
true.  Take  John  Smith,  of  Bloomington.  He  may  deposit  a  thou- 
sand dollars  at  a.  trust  company  in  Bloomington.  That  is  one 
deposit.  The  trust  company  in  Bloomington  will  probably  deposit, 
that  thousand  dollars  in  a  bank  in  Bloomington.  That  will  be  an- 
other deposit.  The  bank  in  Bloomington  will  probably  deposit 
that  thousand  dollars  in  a  bank  in  Indianapolis.  So  from  one  de- 
posit you  are  liable  to  have  four,  because  each  of  them  shows  a 
deposit. 

But  however  that  may  be,  I  think  it  is  conceded  that  the  present 
system  of  taxation  in  Bloomington,  where  a  man  who  has  a  thou- 
sand dollars  is  taxed  about  forty-five  or  forty-seven  dollars,  is  an 
extraordinary  situation.  It  is  one  that  exists  not  only  in  Bloom- 
ington. It  exists  in  Spencer,  and  in  nearly  every  town  in  this 
State.  A  man  who  has  on  deposit  a  thousand  dollars  pays  all  tin* 
way  from  twenty-five  to  fifty  dollars  for  taxes;  and  we  know  that 
money,  when  you  eliminate  all  risk  of  loss  of  interest  and  loss  of 
time,  money  on  the  dead  level,  is  not  worth  probably  over  four  per 
cent. 

But  the  great  question — and  I  am  merely  rehashing  what  has 
been  said  in  these  papers,  but  that  is  what  discussion  usually  does— 
the  great  question  is  the  taxation  of  mortgages.  Now,  an  individ- 
ual cannot  loan  money  on  good  security  at  above  five  per  cent, 
recently  probably  six  per  cent,  without  adding  to  it  an  element  of 
labor;  but  five  per  cent,  is  the  rate  for  money,  sometimes  as  low 
as  four  per  cent,  upon  real  estate.  Now  to  attempt  to  tax  that 
from  two  to  five  per  cent,  of  course  we  all  concede  produces  a 
result  which  defeats  itself,  and  will  produce  ultimately  bank- 
ruptcy. Here  is  an  individual  who  complains  that  his  tax  is  too 
high.  He  gets  very  little  consideration.  "Well."  they  say,  "that 

5—848 


66  INDIANA     rXIVKHSlTY 

-is  all  right.  It  is  all  right.  So  long  as  this  is  a  republic  he  ought 
to  stand  it. ' '  It  reminds  me  of  one  of  the  French  Kings  before  the 
Revolution.  When  his  minister  wanted  him  to  levy  a  tax  of  ten 
per  cent.,  although  he  was  king  of  France  he  hesitated.  So  he 
called  in  his  French  advisor,  who  said,  "Why,  your  Majesty,  all 
this  property  belongs  to  you;  and  if  yo>u  only  take  ten  per  cent, 
of  it  a  year  you  are  certainly  exercising  a  great  deal  of  restraint. ' ' 
Louis  proceeded  on  that  basis,  a,nd  the  French  Revolution  followed 
afterwards. 

Of  course,  there  is  a  good  deal  of  that  spirit  abroad.  Why,  it 
is  said,  if  the  State  is  only  taking  four  or  five  per  cent.,  the  State 
is  exercising  great  restraint.  It  is  exercising  great  restraint  if  it 
does  not  take  ten  per  cent.,  or  all  of  it.  We  have  had  men  in  high 
authority  say  to  the  people  of  New  York,  "Why  you  better  be 
good,  because  the  State  can  take  all  of  your  money.  The  right 
of  inheritance,  the  right  of  disposition  by  will  is  permitted  by  law. 
It  can  be  taken  away  by  law,  and  the  Gauls  and  Vandals  may 
come  in,  and  when  you  die  it  may  all  go  to  the  State." 

But  we  get  back  after  all  to  this  practical  question.  As  I  say, 
when  the  individual  makes  an  objection  he  is  met  very  often  with 
very  little  consideration.  You  have  got  to  show  that  the  state  will 
suffer  by  a  law  of  that  kind. 

A  gentleman  was  telling  me  today  of  a  man  who  had  lived  in 
Indiana  who  had  been  extremely  fortunate  in  his  investments,  far 
beyond  the  dreams  of  avarice,  and  came  back  to  Indiana  and  said 
he  would  like  to  live  in  Indiana.  "I  would  like,"  he  said,  "to 
bring  up  my  children  in  this  State,  but  I  am  going  to  investigate 
your  tax  law.  My  money  is  largely  in  bonds  and  mortgages  which 
are  already  taxed.  The  property  itself  is  taxed.  These  are  mere 
shadows  of  property,"  as  has  been  said  here  today.  "I  have  got 
to  consider  whether  I  can  live  in  Indiana  and  pay  taxes  on  these 
five  per  cent,  bonds."  And  he  tools  up  the  question,  and  he  said, 
"I  cannot  live  here.  I  will  have  to  go  elsewhere."  And  he  did 
go  elsewhere. 

Now,  if  the  operation  of  your  tax  law  is  bound  to  result  in 
something  of  that  kind  the  State  is  not  benefited,  but  harmed. 
The  state  cannot  presume  and  will  not  presume  that  it  is  beneficial. 
I  f  such  rates  are  applied  upon  mortgages,  we  will  say,  it  prevents 
Ilic  individual  from  loaning  money.  If  you  have  laid  by  your 
money,  if  you  are  a  professor  in  a  University,  if  you  are  a  lawyer 
or  professional  man,  or  business  man,  and  you  say,  "I  want  to 


TAXATION    IN    INDIANA  67 

prepare  to  retire  and  live  modestly  on  my  income,''  you  cannot  do 
it.  You  cannot  invest  your  mone}'  in  mortgages,  or  anything  of 
that  kind.  Now  the  Insurance  Company  can  lend.  The  Trust 
Company  can  lend,  but  the  individual  cannot. 

This  is  only  in  line  with  what  has  been  said  here,  and  this  is 
a  highly  practical  question,  and  I  am  delighted  to  see  that  it  is 
being  approached  by  the  professional  talent  as  a  practical  ques- 
tion. I  believe  that  out  of  this  will  come  a  solution  of  the  question 
that  will  benefit  the  state  financially. 

Take  this  talk  about  mortgages,  bonds  and  mortgages.  We  all 
know  they  are  a  device  to  allow  youth  and  energy  to  get  hold  of 
the  means  with  which  to  do  business;  and  they  provide  the  only 
means  there  is  by  which  the  man  who  is  getting  old,  has  accumu- 
lated his  money,  can  invest  it  so  as  to  derive  a  steady  income  from 
it.  It  is  the  only  way  that  the  young  man  who  wants  to  do  some- 
thing can  get  the  means  to  do  it.  He  has  to  get  hold  of  it  by  a  bond 
or  a  mortgage,  or  something  of  that  kind.  It  is  not  a  club  or  an 
instrument  of  the  rich  man  with  which  to  oppress  the  poor  man, 
as  so  many  generally  and  mistakenly  think.  It  is  a  device  to  allow 
enterprise,  energy  and  capacity  to  get  the  means  of  production. 
Therefore,  I  say  that  this  is  a  question  that  vitally  interests  the 
State  of  Indiana  as  a  whole ;  it  is  vitally  connected  with  its  pros- 
perity and  development,  and  it  is  a  great  pleasure  to  me  to>  have 
attended  this  meeting  and  heard  these  comprehensive  and  interest- 
ing papers.  (Applause.) 

CHAIRMAN  DUNN:*  Is  there  any  further  discussion  of  the 
paper?  If  not,  I  would  like  to  add  just  one  word  to  what  Mr. 
Link  said  about  the  misleading  character  of  figures  taken  as  those 
were.  You  are  assuming  that  the  tangible  property  of  the  State 
is  assessed  at  its  true  value,  which  it  is  not.  As  a  matter  of  fact 
there  is  just  as  much  discrimination  in  the  value  of  tangible  prop- 
erty as  there  is  in  real  estate,  or  anything  else,  and  the  same  dis- 
parity between  the  assessment  of  large  owners  and  small  owners 
is  very  noticeable  in  it.  If  you  will  take  a  handsomely  furnished 
house  with  expensive  paintings,  valuable  carpets,  a  piano,  and 
things  of  that  kind,  and  compare  the  assessed  value  of  that  prop- 
erty with  the  assessed  property  of  the  man  that  is  living  in  two 
rooms,  or  in  one  room,  and  get  at  the  proportion,  you  will  see 
that  it  is  the  small  property  owner,  the  small  owner  of  personal 
property,  that  is  paying  the  taxes,  not  the  large  one;  and  that  the 
idea  that  personal  property,  tangible  personal  property,  is  all 


liS  INDIANA    UNIVERSITY 

taxed,  is  a  mistake.    So  with  blooded  stock,  so  with  anything  that 
has  an  unusual  value. 

Now,  unless  there  is  something  further  on  this  question,  we 
will  proceed  to  the  final  discussion  of  the  day,  "Should  a  State 
Tax  Association  be  Organized  in  Indiana,"  and  I  will  call  on  Mr. 
Ernest  I.  Lewis,  of  Indianapolis,  to  open  that  discussion. 

SHOULD  A  STATE  TAX  ASSOCIATION  BE  ORGANIZED  IN  INDIANA? 

MR.  ERNEST  I.  LEWIS:  Mr.  Chairman  and  gentlemen — Every 
<nu>  who  has  spoken  thus  far  seems  to  be  dissatisfied  with  the  In- 
diana tax  system,  except,  Mr.  Dunn — and  he  does  not  seem  to  be 
satisfied. 

At  all  events,  it  seems  that  this  conference  serves  to  bring 
before  the  state,  temporarily,  the  subject  of  taxation.  It  directs 
attention  to  either,  as  Mr.  Sims  and  others  hold,  defects  in  the  sys- 
tem, or,  as  Mr.  Dunn  insists,  defects  in  application  of  what  he 
believes  to  be  a  good  and  adequate  system.  From  these  two  widely 
variant  points  we  find  progress  to  a.n  agreement,  that  at  least  we  are 
now  suffering  from  unequal  taxation.  Thus  far,  the  conference  has 
.devoted  most  of  its  attention  to  taxation  of  money  and  credits. 
Even  Mr.  Pond,  though  talking  on  taxation  of  corporations,  thinks 
the  unqualified  property  tax  principle  obsolete.  Other  phases  of  dis- 
satisfaction will  be  presented  later  in  this  conference.  I  have  been 
greatly  impressed  by  Mr.  Sims's  revelation  of  conditions  in  In- 
diana, especially  in  respect  to  money  and  credits. 

He  asserts  that  the  tax  rates,  and  rates  of  assessment,  in  Indiana 
towns  and  cities — the  natural  repositories  of  money — -have  become 
so  unfair,  and  approach  so  nearly  confiscation  of  the  earnings  on 
money  and  from  credits,  that  Indiana  money  is  being  .discriminated 
against  in  favor  of  money  from  other  states.  He  asserts  that  In- 
diana money  is  leaving  the  state ;  that  people  with  money  are  leav- 
ing the  state  and  becoming  residents  of  New  York,  California,  Mich- 
igan, Pennsylvania  and  other  states  with  laws  thought  to  be  more 
fair  and  equitable  to  money  and  credits. 

He  even  asserts  that  our  laws  are  so  obsolete  and  so  unfair,  that 
today,  if  an  attempt  were  made  to  actually  enforce  the  Indiana  tax 
laws,  the  doors  of  our  banking  institutions  would  close.  This 
would  wipe  out  the  machinery  created  to  perform  the  very  neces- 
sary function  of  gathering  in  idle  money  and  putting  it  into  use. 

These  are  very  serious  matters — certainly  the  whole  state  must 


TAXATION    IN    INDIANA  69 

be  interested  deeply,  if  those  statements  are  true.  But  are  they 
true? 

After  presenting  these  alleged  facts — the  real  condition  in  In- 
diana as  he  sees  it — Mr.  Sims  incidentally  quotes  a  very  eminent 
theorist,  Professor  Bullock  of  Harvard  University,  as  follows: 

"The  method  and  rates  of  taxation  must  he  adjusted  to  the  re- 
quirements of  the  various  classes  of  taxable  objects;  no  rate  upon 
any  class  should  be  higher  than  can  be  collected  with  reasonable 
certainty.  No  rate  should  be  so  high  as  to  drive  out  of  a  com- 
munity persons  of  capital  or  industries,  and  any  rate  that  exceeds 
what  a  class  of  taxable  objects  will  bear,  must  result  in  loss  of 
revenue,  injury  to  industry  and  such  general  demoralization  as 
accompanies  wide-spread  evasion  of  the  law." 

Mr.  Sims's  statements  of  facts,  if  found  to  be  true,  go  strongly 
to  prove  the  fact  that  Bullock  has  stated  a  scientific  basis  for  taxa- 
tion. If  it  is  really  scientific,  and  if  Mr.  Sims's  statements  are  true 
then,  no  matter  where  one  is  in  Indiana,  there  he  should  not  only 
find  the  conditions  which  Mr.  Sims  states,  but  the  effects  which 
Professor  Bullock  states. 

•We  are  now  in  Bloomington.  The  tax  rate  in  Bloomington  is 
4.82  per  cent.  The  Monroe  county  farmer  must  have  money,  and 
generally  speaking,  on  sums  greater  than  $800  he  is  demanding  it 
at  6  per  cent.  On  smaller  sums  he  must  now  go  up  to  7  or  8  per 
cent.  This  is  the  general  condition  over  Indiana.  If  the  Bloom- 
ington man  with  idle  money  loans  money  to  meet  the  county's 
legitimate  demand  for  that  money,  he  gets  6  per  cent.  The  loan  goes 
on  record,  and  there  is  no  escape  from  taxation.  If  the  law  is  en- 
forced to  the  letter,  he  must  pay  4.82  per  cent,  of  his  6  per  cent, 
to  the  public  treasurers.  Here,  however,  he  is  let  off  now  with  a 
75  per  cent  assessment  of  money,  which  means  that  out  of  the  $60 
that  he  receives  as  interest  on  a  $1,000  loan  he  must  pay  over  $40. 

We  talk,  with  much  earnestness,  a,bout  the  tremendous  bur- 
dens of  taxation  that  regal  England  must  bear  and  think  that  the 
income  tax  of  26  or  28  cents  in  each  $4.86  is  a  crushing  burden. 
We  likewise  deplore  the  heavy  taxation  in  ambitious  Japan  where, 
under  war  emergency,  it  amounted  up  to  33  per  cent,  of  income. 
But  we  overlook  the  fact  that  while  Japan  takes  33  per  cent,  in 
emergency,  and  Great  Britain's  burden  is  only  5  per  cent,  of  in- 
come, here  at  home,  in  Bloomington,  money  loaned  at  high  farm 
mortgage  rates  is  subjected  to  a  taxation  of  66  per  cent,  even  after 
deduction  of  25  per  cent,  in  assessment  for  taxation  is  allowed. 


70  INDIANA    UNIVERSITY 

But  thus  far  we  have  dealt  only  with  the  6  per  cent,  recorded 
mortgage  loan.  Bloomington  has  savings  banks.  The  rate  of  in- 
terest is  3  per  cent,  on  savings.  If  the  savings  are  reported,  the 
saver  has  to  give  over  his  3  per  cent,  and  then  dig  down  into  his 
pocket  and  pay  another  1  per  cent,  or  1.82  per  cent,  for  the  privi- 
lege of  losing  money  by  saving  his  money.  In  short,  on  money 
and  credits,  in  this  community,  where  we  test  out  Mr.  Sims 's  state- 
ments, and  Professor  Bullock's  theory,  taxation  has  got  up  to  the 
point  of  100  per  cent. 

Wherever  such  conditions,  or  conditions  anywhere  approximat- 
ing these,  exist,  one  of  several  things  must  happen.  First,  money 
and  credits  are  sequestered.  In  Bloomington  the  return  of  all  per- 
sonal property  this  year  is  $1,110,000.  There  are  in  deposits  alone 
in  Bloomington  banks  $1,400,000,  or  $300,000  more  in  deposits 
alone  than  the  total  return  of  all  personal  property.  The  result  of 
this  is  that  this  property  by  refusing  to  bear  a  part  of  the  burden, 
increases  the  burden  on  other  property. 

Second,  local  idle  money  is  denied  local  needs.  Bloomington 
city  and  county  officials  and  bankers  tell  me  that  there  is  a  greatly 
increasing  investment  here  in  non- taxable  bonds  and  stocks — most 
of  them  issued  outside  of  this  county. 

Third,  people  living  on  money,  move  away.  This  increases  the 
burden  on  those  left  behind,  and  I  understand  that  this  is  the  case 
here  to  a  certain  extent, -but  that  the  more  noticeable  demonstra- 
tion of  this  principle,  or  effect,  is  that  people  of  means  who  would 
like  to  move  here  to  educate  their  children,  refrain  from  doing  so. 

I  want  to  take  just  a  moment  to  apply  this  to  interest  rates. 
At  the  county  court  house,  and  at  the  local  banks,  I  am  told  that 
practically  all  of  the  money  that  is  now  being  loaned  in  this  county 
is  eastern  money — the  money  of  the  big  insurance  companies — or 
is  school  fund  money.  Two  local  men  dealing  in  loans  estimate 
that  nine-tenths  of  the  money  demanded  and  borrowed  by  Monroe 
county  farmers  is  this  money  that  comes  from  outside  the  state. 

It  is  obvious  that  the  Bloomington  people  with  idle  money  can- 
not compete  in  loaning  money  at  home  here,  with  a  person  living 
in  Indianapolis  where  instead  of  the  taxing  officials  taking  66  per 
cent,  of  the  income  as  is  the  case  here  on  mortgages  of  record,  the 
taxing  officials  take  only  about  40  per  cent.  But  the  man  in 
Indianapolis,  in  his  turn,  cannot  compete  with  the  eastern  insur- 
ance companies  and  others  living  outside  the  state  who  can  loan 
money  in  Monroe  county  and  escape  taxation  entirely,  or  if  they 


TAXATION    IN   INDIANA  71 

desire  to  conform  with  the  law  in  New  York  and  some  other 
states  mentioned  by  Mr.  Sims,  can  register  the  loan  paying  once, 
and  for  all,  one  half  of  one  per  cent,  or  if  they  live  in  Pennsylvania, 
Rhode  Island,  Minnesota  and  some  other  states  can  pay  a  specific 
special  tax  of  only  3  or  4  mills  annually. 

Let  us  summarize  the  results :  In  the  first  illustration  the  con- 
ditions drive  the  interest  payments  out  of  Monroe  county — away 
from  home — to  Marion  county.  In  the  second  illustration — and  the 
one  which  states  the  true  condition — the  non-state  people  are  given 
practically  a  monopoly  in  this  and  other  Indiana  counties  of  meet- 
ing the  legitimate  and  necessary  demand  for  money,  and  the  inter- 
est goes  out  of  the  state,  and  goes,  as  a  rule  to  swelling  the  surpluses 
of  the  great  insurance  companies  located  outside  of  this  state.  It 
would  be  difficult  to  find  a  more  serious  state  of  affairs. 

It  is  true  that  the  tax  rate  in  Bloomington  is  very  high.  As 
I  came  down  here  last  evening,  I  ran  over  the  Biennial  Report  of 
the  Indiana  State  Board  of  Tax  Commissioners  for  1912.  It  was 
impossible  to  take  the  tax  rates  for  all  towns  and  cities  in  Indiana, 
but  I  did  tabulate  the  tax  rate  of  the  county  seats  for  1911.  Ob- 
viously it  would  be  confusing  to  read  the  92  local  rates  here,  so 
I  have  struck  the  average.  Often  the  county  seats  do  not  have  as 
high  rates  as  some  of  the  other  towns  and  cities,  but  let  us  take 
the  county  seats  as  possibly  giving  a  fair  average  for  the  tax  rates 
in  all  corporated  towns  and  cities  in  Indiana.  The  average  for 
1911  was  3.14  per  cent.  It  is  much  higher  than  that  now,  as  very 
few  towns  and  cities  have  reduced  their  tax  rate  in  the  last  two 
years,  while  decided  increases  are  the  rule. 

For  example,  the  Bloomington  rate  in  1911  was  3.87  per  cent, 
now  it  is  4.82  per  cent.  The  Indianapolis  rate  has  jumped  from 
2.14  per  cent,  to  2.36  per  cent.  It  is  safe  to  say  that  the  average 
for  1913  is  between  3.33  and  3.50,  which  means,  if  applied,  the 
confiscation  of  return  on  commercial  paper  and  savings  deposits, 
and  a  taxation  of  70  per  cent,  on  the  return  from  5  per  cent,  loans 
and  almost  60  per  cent,  on  the  return  from  6  per  cent,  loans. 

Were  it  not  too  personal,  an  interesting  list  of  people  of  large 
means  who  have  moved  to  New  York,  California,  and  other  modern 
taxation  states  could  be  read.  Another  list  could  be  given  of  In- 
diana people  withdrawing  Indiana  loans.  The  demagogue  may 
say:  "Let  the  tax  dodgers  go,"  but  as  they  do  go,  and  withdraw 
their  contributions  to  the  public  treasury,  the  demagogue's  burden 
becomes  greater. 


72  I  MM  ANA    UNIVERSITY 

As  the  tax  rate  goes  higher,  sequestering  property  becomes 
greater,  and  that  in  turn  boosts  the  rate  still  higher. 

There  is  much  talk  now  about  farm  credits.  Even  the  national 
government  is  studying  the  Landschaften,  and  Reiffeisen  systems 
in  Germany  and  the  Credit  Foncier  in  France.  But  could  either 
of  these  systems  be  established  in  Indiana,  for  example,  when  4 
or  4J  per  cent,  bonds  or  even  5  per  cent,  bonds,  would  be  subject 
to  a  taxation  which  ranges  from  2  1-5  to  5  per  cent.  ? 

There  may  be  an  easier  way  to  get  the  farmer  4J  or  5  per  cent, 
money  than  that.  It  might  be  done  by  letting  Monroe  county  people 
loan  Monroe  county  people  money  on  fair  tax  basis,  such  as  other 
states  are  providing.  The  farmers  of  a  township  can  borrow  money 
at  4J  per  cent,  collectively  to  build  gravel  roads — and  those  securi- 
ties are  not  so  good  as  a  mortgage  on  the  farmers'  own  land,  on 
which  they  have  to  pay  6  or  7  or  8  per  cent.  There  would  be  one 
other  advantage,  aside  from  lower  rates  to  farmers  and  greater 
revenues  to  reduce  the  tax  rate.  That  is,  the  interest  money  would 
not  be  flowing  out  of  the  State,  as  Mr.  Sims  also  asserts,  money 
and  people  are  doing. 

Just  one  other  word.  Mr.  Sims  and  Mr.  Dunn  both  referred 
to  unfair  assessments  of  money  and  credits.  I  tested  that  out 
here,  and  the  test  is  true  to  what  will  be  found  in  all  other  counties. 
Farms  are  assessed  at  about  40  per  cent,  or  less  than  that  of  their 
value,  real  estate  in  towns  and  cities  is  assessed  less  than  60  or 
50  per  cent.  Other  personal  property  is  weirdly  assessed,  but 
money  in  its  various  forms  is  assessed  75  per  cent.  In  some  coun- 
ties, county  boards  of  review  have  insisted  on  100  per  cent.  I 
recall  an  illustrative  incident  that  occurred  in  a  northern  Indiana 
county  three  or  four  years  ago. 

A  man  who  was  loaning  money  to  farmers  was  called  before 
the  county  board  of  review.  The  investigation  revealed  that  he 
had  been  reporting  in  70  per  cent,  of  value  for  assessment.  The 
chairman  of  the  board  was  particularly  insistent  on  compliance 
with  the  law — a  valuation  of  100  per  cent.  The  lender  said  that 
other  property  owners  in  the  county  were  only  reporting  in  all 
the  way  from  33  to  50  per  cent,  value  while  he  reported  70  per 
cent.  This  made  no  difference  with  the  chairman. 

Finally  the  lender  turned  to  the  chairman  and  said:  ''You 
have  a  farm  west  of  town.  How  much  do  you  return  it  for  taxa- 
tion?" Reluctantly  came  the  information,  "Forty  dollars  an 
acre."  "I  will,"  he  said  "give  you  $50  an  acre."  The  offer 


TAXATION   IN   INDIANA  73 

was  declined.  "I  will  give  you  $75  an  acre."  Again  the  offer 
was  refused.  "I  will  give  you  $100."  Again  refused.  "Well, 
I  will  give  you  $150  an  acre."  Still  the  chairman  refused.  Per- 
haps he  would  have  refused  $200  an  acre,  but  he  did  insist  on 
money  and  credits  being  listed  at  100  per  cent. 

Gentlemen,  this  conference  is  notable.  It  arouses  temporary 
interest.  Is  this  conference  to  end  with  this  interest?  There  is 
only  one  way  to  maintain  and  spread  this  interest,  and  get  the 
people  of  Indiana  to  decide  whether  it  is  a  defective  system  or 
a  defective  administration  that  is  responsible  for  the  general  dis- 
content and  apparent  inequalities. 

I  believe  that  we  should  take  steps  here  to  organize  a  State 
Tax  Association.  Similar  associations  have  produced  results  in 
other  states.  In  the  proceedings  of  the  Sixth  Annual  Conference 
of  the  National  Association  on  State  and  Local  Taxation,  there 
is  a  description  of  the  Dakota  Association.  It  conforms  much  to 
the  organizations  in  New  York  and  other  states,  and  I  am  not  going 
into  that  in  any  great  detail;  but  here  are  the  objects  that  are 
stated  in  its  by-laws: 

"1.  The  encouragement  of  the  study  of  state  and  local  taxa- 
tion in  North  Dakota. 

"2.  The  promotion  of  legislative  and  administrative  reforms 
in  our  taxing  system. 

"3.  The  publication  of  papers  and  other  materials  relating 
to  revenue  and  taxation. 

"4.  The  holding  of  meetings  for  conference  and  discussion 
of  sucli  questions. 

"Membership.  All  persons  and  institutions  such  as  libraries, 
clubs,  schools,  etc.,  interested  in  studying  our  present  revenue  and 
taxation  systems,  shall  be  eligible  to  membership  in  this  Associa- 
tion." 

Well,  the  record  is  that  they  have  been  effective  up  there.  They 
have  brought  about  a  good  many  reforms  both  in  their  taxation 
system  and  also  in  administration.  Both  of  those  points  Mr. 
Dunn  and  Mr.  Sims  agree  upon,  in  a  certain  way.  One  talks 
about  the  defective  system  and  the  other  talks  about  the  defective 
administration  of  what  he  considers  a  good  system. 

I  believe  that,  if  it  is  possible,  the  State  Tax  Association  should 
be  very  directly  connected  with  the  State  University's  extension 
work.  This  conference  has  been  held  under  those  auspices.  If 
we  can  remain  under  such  disinterested  auspices  we  might  escape 


74  INDIANA    UNIVERSITY. 

the  charge  of  this  being  a  movement  on  the  part  of  bankers,  brokers, 
tax  dodgers  and  corporations,  and  other  so  called  "predatory  inter- 
ests. ' '  We  might,  free  of  such  handicaps,  get  a  study  of  the 
problem  and  presentation  of  the  fact  that  Mr.  Sims  presented 
here,  that  in  Rhode  Island  a  specific  low  tax  on  certain  classifica- 
tions of  property  produces  substantial  increased  revenues,  and 
rases  up  the  tax  burden — and  stops  lying.  Dr.  Phelan  and  Dr. 
Stockton  have  just  shown  us  that  the  same  results  have  been  real- 
ized in  Minnesota  and  Maryland.  We  should  weigh  these  things, 
and  Mr.  Dunn  'a  observations,  and  see  what  is  wrong,  and  be  an 
organized  force  to  get  corrections. 

Personally,  I  believe  that  we  should  have  a  permanent  head- 
quarters located  in  Indianapolis  with  a  man  in  charge  who  will 
keep  this  tax  question  before  the  people  of  Indiana  through  the 
papers  and  by  seeing  to  it  that  speakers  go  before  the  various 
meetings  held  in  this  state,  such  for  example  as  the  grange,  bank- 
ers, labor  conventions,  and  get  them  interested  in  this  study.  This 
is  especially  desirable  if  we  are  to  have  a  special  investigating 
col  1 1  mission  appointed  by  the  legislature,  or  if  we  are  face  to  face 
next  year  with  a  constitutional  convention. 

I  hope  that  others  will  express  their  opinion  as  to  what,  if  any, 
steps  should  be  taken,  and  it  may  then  be  timely  to  lay  before 
you  a  motion,  providing  that  the  chair  appoint  a  committee  of 
three  this  afternoon  to  take  up  this  matter,  to  fully  consider  it  in 
light  of  the  suggestions,  and  make  a  report  to  this  convention  to- 
morrow morning  so  that  if  an  association  is  thought  to  be  desir- 
able, we  can  take  steps  here  and  now  to  effect  it. 

I  thank  you  for  your  consideration.     (Applause.) 

CHAIRMAN  DUNN:  Gentlemen,  the  question  of  organizing  is 
before  you.  I  hope  you  will  express  your  views  fully  and  freely 
on  the  subject,  as  to  what  you  think  ought  to  be  done. 

MR.  MARCUS  S.  SONNTAG,  of  Evansville:  Mr.  President — Mr. 
Lewis  has  covered  the  case  pretty  thoroughly  in  his  paper.  We 
have  listened  to  some  very  interesting  addresses  this  morning  and 
this  afternoon,  and  I  feel  confident  the  addresses  that  are  to  follow 
will  be  equally  good. 

This  is  a  subject  that  needs  the  consideration  of  every  man  in 
the  state  that  is  interested  in  the  welfare  of  the  state,  and  I  think 
a  permanent  organization  should  be  perfected  with  headquarters 
in  Indianapolis,  because  we  can  all  get  into  and  out  of  that  city 
more  readily  than  any  other  city  in  the  state.  I  have  a  letter 


TAXATION    IN    INDIANA  75 

here  from  a  prominent  man  in  Iowa,  and  I  would  like  to  rea'd 
just  a  portion  of  it  that  covers  the  ground  we  have  been  discussing 
today.  He  tells  what  the  change  in  the  taxing  laws  of  the  state 
has  done  for  Iowa.  He  says: 

1  i  In  relation  to  the  taxation  of  moneys  and  credits  in  our  state, 
would  say  that  until  two  years  ago  moneys  and  credits  were  taxed 
the  same  as  other  property.  Our  people  realized  that  this  was 
inequitable,  unjust  and  unreasonable,  for  the  reason  that  real 
estate  is  not  taxed  at  its  full  value,  while  moneys  and  credits  were. 
As  an  illustration:  A  building  that  we  own  in  this  city,  valued 
at  ten  thousand  dollars,  is  assessed  at  three  thousand  dollars,  while 
any  person  having  ten  thousand  dollars  in  money  or  credits  is 
assessed  at  the  full  ten  thousand  dollars. 

"Under  the  old  law  we  had  the  tax  ferret  system  in  this  state, 
and  at  any  time  a  city  council  or  board  of  supervisors  could  em- 
ploy one  of  these  tax  ferrets,  contracting  to  give  him  fifteen  per 
cent,  of  all  the  taxes  he  collected  on  what  was  termed  omitted 
property.  The  tax  ferret  system  became  so  obnoxious  that  a  few 
of  us  led  a  fight  to  get  rid  of  them,  and  the  Thirty-fourth  Gen- 
eral Assembly  passed  a  bill  repealing  the  tax  ferret  law  in  this 
state.  There  was  general  rejoicing,  not  a  single  newspaper  in  the 
state  defended  the  system;  on  the  other  hand,  nearly  all  of  them 
condemned  it. 

"A  bill  was  then  passed  making  the  tax  on  moneys  and  credits 
five  mills,  or  one-half  of  one  per  cent.,  in  all  localities.  In  other 
words,  a  man  living  in  Muscatine  pays  no  more  tax  on  his  moneys 
and  credits  than  a  farmer  who  lives  in  the  country.  The  result 
has  been  to  increase  the  amount  of  money  and  credits  returned 
for  taxation,  and  it  is  predicted  that  it  will  prevent  so  many  peo- 
ple from  leaving  this  state  to  reside  in  states  where  the  law  gov- 
erning the  taxation  of  moneys  and  credits  has  heretofore  been 
more  favorable  than  ours. 

"We  are  told  that  in  the  State  of  Connecticut,  when  they 
changed  their  law,  I  think  it  was  to  four  mills  on  the  dollar,  it 
doubled  the  revenue  for  moneys  and  credits. 

"I  am  not  familiar  with  the  law  of  New  York,  but  both  New 
York  and  Pennsylvania  have  similar  laws  to  ours,  and  they  are 
well  pleased  with  the  plan.  The  New  York  law,  as  I  understand, 
practically  exempts  some  classes  of  securities  to  resident  owners, 
but  I  am  not  familiar  with  its  provisions. ' ' 

So  it  seems  that  they  are  very  much  pleased  with  the  change 
in  their  laws  there  in  Iowa. 


76  INDIANA    UNIVERSITY 

CHAIRMAN  DUNN  :     Is  there  any  further  discussion  ? 

MR.  EBEN  H.  WOLCOTT  :  Mr.  Chairman — Along  the  line  of  what 
was  said  about  taxation  driving  people  and  capital  out  of  the  state, 
I  wish  to  call  attention  to  a  circular  I  recently  received  from 
Houston,  Texas.  It  has  in  very  great  headlines,  "Reasons  why 
people  should  move  to  Houston,  Texas."  Then, — 

'" First.  All  real  estate  is  assessed  at  seventy-five  per  cent,  of 
its  value. 

* i  Second.  Improvements  upon  real  estate  are  assessed  at  twen- 
ty-five per  cent,  of  the  value. 

"Third.  That  there  is  no  tax  on. notes,  bonds,  mortgages,  evi- 
dence of  indebtedness,  household  goods,  or  personal  property. 

"Fourth.     That  the  rate  is  $1.50." 

CHAIRMAN  DUNN  :     Is  there  any  further  discussion  ? 

MR.  OREN  H.  RAGSDALE,  of  Indianapolis :  Mr.  President — In  the 
same  connection  there  is  one  point  I  believe  that  has  not  been 
touched  upon  that  is  worthy  of  consideration.  Last  year,  during 
the  session  of  the  Legislature,  a  great  deal  of  time  was  given  to 
the  discussion  of  a  "blue  sky"  law.  One  was  finally  passed  by 
both  the  House  and  the  Senate,  and  I  think  fortunately  vetoed  by 
the  Governor.  I  chance  to  be  interested  in  the  investment  busi- 
ness. I  am  particularly  very  closely  in  touch  with  taxation.  Quite 
recently,  in  fact  very  recently,  parties  come  into  our  office  whom 
we  feel  quite  certain  cannot  afford  to  take  a  chance  with  their 
principal.  We  will  offer  them  what  we  think  to  be  high  grade 
securities.  One  of  the  first  questions  asked — they  will  be  very 
much  interested,  but"  they  will  ask  the  question  almost  invariably, 
"Is  this  bond  taxable?"  If  it  chanced  to  be  a  corporation  bond, 
no  matter  what  the  nature  of  the  corporation,  no  matter  how  high 
grade,  we  answer,  "Yes,"  and  they  immediately  lose  interest.  If 
we  should  have  in  our  list  of  securities  a  wildcat  proposition  which 
was  not  taxable  we  could  interest  them  in  that  at  once.  We  would 
get  their  interest  right  away,  on  the  ground  that  the  thing  was 
not  taxable.  It  is  much  easier  to  sell  a  preferred  stock  in  our 
present  market  than  it  is  the  highest  grade  of  corporation  bonds. 
A  person  will  buy  the  stock  of  the  same  company  in  preference 
to  the  bonds,  even  though  the  rate  may  be  the  same,  because  the 
stock  is  not  taxable. 

I  think  we  are  all  interested  in  serving  the  public  in  Indiana, 
and  f  believe  that  a  good  fair  equal  tax  law  would  be  a  very  good 


TAXATION    IN    INDIANA  77 

substitute,  at  least  in  part,  for  the  "blue  sky"  law.     I  am  in  favor 
of  a  permanent  organization.     (Applause.) 

PROF.  JAMES  W.  PUTNAM,  of  Butler  College:  Mr.  President, 
—I  liked  the  suggestion  that  was  made  that  Indiana  University, 
through  its  Extension  Division,  should  look  after  this,  and  get 
the  right  men  at  the  headquarters  to  be  established  at  Indianapolis ; 
but  I  take  it  we  are  not  the  people  to  decide  how  Indiana  University 
shall  spend  the  money  to  support  its  Extension  Department.  I 
would  like,  however,  if  a  motion  is  in  order  at  this  time,  to  move 
that  a  committee  of  three  be  appointed  to  investigate  the  possi- 
bility of  such  an  arrangement,  and  to  report  to-morrow  morning. 

MR.  ERNEST  I.  LEWIS,  Mr.  President — Whatever  we  do  here, 
if  we  organize  a  State  Tax  Association,  let  it  be  one  to  get  down 
to  facts  and  find  out  whether  Mr.  Dunn  is  correct  or  whether  Mr. 
Sims  is  correct.  At  all  events  to  find  out  what  is  the  something 
that  is  wrong. 

Now,  the  danger  that  Mr.  Link  speaks  of,  and  that  I  just 
touched  on,  is  that  unless  the  thing  is  pretty  well  guarded  it  will 
be  branded  at  once,  or  very  soon,  as  being  a  highly  interested 
organization.  I  think  that  is  one  of  the  things  we  want  to  be  very 
careful  about,  if  we  are  going  to  organize.  We  had  better  not 
organize  at  all,  if  that  is  going  to  be  the  situation. 

CHAIRMAN  DUNN  :     Did  you  make  a  motion,  Mr.  Lewis  ? 
MR.  LEWIS  :     Yes,  I  did  present  that  motion. 

CHAIRMAN  DUNN:  In  view  of  the  suggestion  of  Mr.  Lewis 
about  our  being  suspected  of  being  interested  at  once,  I  wish  to 
assure  the  audience  that  I  am  not  a  capitalist,  and  that  Mr.  Lewis 
is  not.  The  rest  of  you  I  cannot  speak  for,  but  we  are  just  com- 
mon folks.  Is  there  any  discussion  of  the  question  of  the  appoint- 
ment of  the  committee? 

DR.  WILLIAM  A.  RAWLES:  Mr.  Chairman — I  wish  to  say  that 
I  am  not  in  a  position  to  speak  for  the  University  in  regard  to 
this  matter  of  the  Extension  Division  taking  over  this  work.  I 
feel  myself,  though,  that  this  can  be  more  effectively  done  by  an 
association,  rather  than  by  some  one  representing  the  University. 
I  am  sure  that  the  University  will  cooperate  always  with  such  an 
association. 

We  have  had  well  demonstrated  here  today  the  fact  that  there 
is  a  great  dissatisfaction  in  this  state  with  our  tax  system,  and 


78  INDIANA    UNIVERSITY 

that  there  has  been  for  many  years,  and  you  will  find,  if  you  will 
read  the  reports  of  the  Auditors  going  back  to  the  days  of  the 
forties,  that  the  same  dissatisfaction  was  expressed.  Now  why 
is  it  that  a  condition  that  creates  such  dissatisfaction  continues 
so  long?  It  seems  to  me  that  there  are  several  causes  that  con- 
tribute to  this.  One  of  these  is  the  natural  inertia  of  people,  the 
indisposition  of  people  to  undertake  something  which  is  a  little 
different.  Another  fact  is  that  we  are  all  individually  so  interested 
in  our  own  affairs,  in  our  own  business,  our  professions,  what- 
ever our  calling  may  be,  we  are  all  so  interested  in  these,  and  so 
absorbed,  that  we  have  not  the  time  to  give  to  the  consideration 
of  these  matters  of  state,  and  matters  which  require  a  great  deal 
of  time  to  solve  and  supervise. 

Then,  again,  I  think  sometimes  we  feel  that  we  are  in  the  grip 
of  a  system,  that  it  is  not  worth  while,  that  we  cannot  do  much 
anyway.  I  frequently  have  felt  this  for  ten  years.  "Well,  what 
can  I  do?"  "What  can  1  do?"  "What  is  the  use?"  "I  am 
only  one  man,  unknown  in  the  state ;  what  can  I  do  to  bring  about 
a  better  condition  ? ' ' 

Now,  it  seems  to  me  that  what  we  need  in  this  state  is  an  arous- 
ing of  public  opinion,  an  arousing  and  stimulating  of  the  thought 
of  the  people  upon  this  question.  And  it  will  require  a  cam- 
paign of  education,  and  a  campaign  of  education  will  require 
some  directing  authority,  some  association,  some  group  of  persons 
who  are  unselfish,  who  are  willing  to  put  a  little  money  into  this 
thing,  who  are  willing  to  back  this  up  and  give  of  their  time  and 
convenience  and  comfort  what  is  necessary  to  drive  this  movement 
forward  and  arouse  public  sentiment. 

Therefore,  I  am  strongly  in  favor  of  the  organization  of  an 
association  here  which  can  create  a  sound  public  opinion  upon 
this  question;  which  can  take  up  these  questions,  as  Mr.  Lewis 
says,  and  study  them  and  investigate  them  and  bring  information 
to  everybody  upon  them — clarify  the  atmosphere.  You  see  there 
is  quite  a  difference  of  opinion  here,  and  out  of  that  will  come,  I 
think,  a  benefit  to  the  state  as  a  whole.  I  see  no  way  in  which  we 
can  get  out  of  this  difficulty  except  this  way  of  public  sentiment, 
arousing  public  sentiment  and  developing  public  opinion. 

In  the  introduction  of  the  proceedings  of  the  Second  Confer- 
ence, the  National  Conference  on  Taxation,  there  is  found  a  state- 
in  cut  which  I  think  summarizes  the  reasons  for  a  Tax  Association 
in  an  admirable  way,  and  f  want  to  read  it: 


TAXATION    IN    INDIANA  79 

"To  bring  together  the  students  and  teachers  of  the  theories 
of  taxation,  to  invite  the  tax  administrators  to  recount  and  explain 
the  problems  and  difficulties  and  the  practical  effects  of  admin- 
istering the  various  systems  of  taxation,  and  finally  to  obtain  the 
criticism  and  suggestion  of  those  who  pay  the  taxes,  is  the  surest 
way  to  secure  the  gradual  elimination  of  the  evils  and  inequalities 
of  taxation." 

I  therefore  second  this  motion  very  heartily  that  this  committee 
be  appointed  with  the  request  that  they  proceed  to  draft  a  con- 
stitution for  submission,  either  tonight  or  tomorrow  morning. 

MR.  ERNEST  I.  LEWIS:  Mr.  President — I  want  it  understood 
that  my  motion  was  simply  that  this  committee  consider  it,  If 
we  then  find  we  want  to  go  ahead  let  them  formulate,  if  they  will ; 
but  my  motion  was  just  simply  to  consider  the  proposition,  and 
to  determine  the  matter  of  financing  it,  under  whose  direction  it 
shall  be,  and  report  tomorrow  morning. 

CHAIRMAN  DUNN:  Do  you  object  to  the  committee  reporting 
tonight  ? 

MR.  ERNEST  I.  LEWIS:  I  just  want  to  make  it,  Mr.  Chairman, 
so  that  it  will  not  be  lost  in  the  closing  hours  of  the  conference. 
In  the  last  session  everybody  commences  to  "light  out."  There- 
fore, if  we  are  going  to  do  anything  we  ought  to  get  at  it  and  lay 
the  foundation  here,  and  we  ought  to  be  pretty  well  along  in  the 
organization  before  the  conference  adjourns. 

CHAIRMAN  DUNN:  Your  proposition  is  simply  for  a  prelimi- 
nary consideration,  before  undertaking  to  prepare  a  constitution 
or  organization  at  all. 

MR.  ERNEST  I.  LEWIS  :  I  think,  Mr.  Chairman,  if  it  is  desirable, 
if  they  decide  that  it  is  desirable  that  we  organize  an  association, 
they  should  go  ahead  and  give  us  the  foundation  for  it,  and  start 
things. 

CHAIRMAN  DUNN:  I  should  think  that  they  might  at  least 
report  tonight  whether  it  is  desirable  to  form  such  an  organization. 

MR.  ERNEST  I.  LEWIS  :     I  think  that  would  be  very  well. 

MR.  MARCUS  S.'SONNTAG,  of  Evansville:  Mr.  Chairman — Why 
not  have  the  committee  report  tonight,  or  tomorrow  morning? 


80  INDIANA    UNIVERSITY 

ME.  ERNEST  1. '  LEWIS  :  Let  them  investigate  and  report  to- 
night, so  that  we  can  take  the  necessary  steps  by  tomorrow  noon, 
at  all  events. 

CHAIRMAN  DUNN:  Your  motion  is  then,  as  1  understand,  for 
the  appointment  of  a  committee  to  take  the  necessary  steps  for 
the  organization  of  a  Tax  Association,  if  they  decide  that  such 
an  organization  is  desirable.  Those  in  favor  of  the  motion  will 
say  aye.  Contrary,  no.  The  motion  is  agreed  to. 

I  will  appoint  Mr.  Lewis  as  chairman  of  that  committee,  and 
Mr.  Bowman  of  Richmond,  and  Mr.  Lapp,  and  Mr.  Remy,  the  other 
members ;  and  ask  them  to  get  as  far  along  as  they  can  by  this 
evening's  meeting.  Now  is  there  any  further  business? 

MR.  ERNEST  1 .  LEWIS  :  Mr.  Chairman — I  do  not  want  to  occupy 
the  floor  too  much,  but  my  time  is  strictly  taken  up  for  tonight. 
I  have  all  I  can  do,  and  if  you  will  please  excuse  me  from  that 
committee  I  think  it  would  be  better.  You  seem  to  have  a  good 
committee  without  me,  and  I  have  to  report  the  meeting. 

CHAIRMAN  DUNN:  I  think  the  chairman  would  be  authorized 
to  set  the  rest  of  the  committee  to  work,  and  then  he  can  go  make 
the  report  of  the  meeting.  Is  there  any  further  business  to  come 
before  the  association? 

MR.  LAWSON  PURDY,  of  New  York :  Mr.  Chairman — It  occurs 
to  me  that  possibly  it  might  interest  some  of  you  people  if  for 
just  three  minutes  I  told  them  what  might  be  done  in  the  case 
of  the  gentleman  to  whom  the  attorney,  I  think  Mr.  Milligan  of 
Indianapolis,  referred,  who  wanted  to  reside  in  Indiana;  and  also 
just  one  word  or  two  about  the  conditions  that  exist  in  New  York. 
I  am  to  read  a  paper  tonight,  but  I  haven 't  in  that  paper  told  you 
just  these  things. 

Being  an  attorney,  and  being  concerned  with  taxation  for 
many  years,  and  having  for  the  last  seven  years  or  a  little  over 
been  tax  commissioner,  my  mind  turns  to  the  solution  practically, 
under  the  laws  as  they  are  here,  of  the  question  involved  in  the 
situation  of  Mr.  Milligan 's  friend.  Had  Mr.  Milligan 's  friend 
come  to  my  office  for  advice  I  might  have  advised  him  in  this 
way,  provided  only  he  had  a  wife  in  whom  he  had  confidence,  and 
it  appeared  he  did  have  a  wife  and  had  children.  I  think  I  should 
have  said  to  him,  "Bring  your  bonds  to  the  State  of  New  York 
arid  pay  one-half  of  one  per  cent,  tax  on  those  bonds.  Then  they 


TAXATION    IN    INDIANA  81 

are  tax  exempt  forever  after  in  the  State  of  New  York.  Then 
make  a  trust  deed  by  which  you  would  convey  to  one  of  our  re- 
sponsible trust  companies  the  title  to  those  bonds,  naming  your 
wife-  as  your  beneficiary  for  life,  with  a  reversion  to  you  at  her 
death,  and  return  to  Indiana." 

DR.  FRANK  T.  STOCKTON  :  And  be  happy  ever  after.  (Laugh- 
ter.) 

MR.  LAWSON  PURDY,  of  New  York:  Oh,  of  course  I  would 
rather  have  him  live  in  New  York,  but  I  just  wanted  to  see  if  I 
could  not  arrange  it  so  that  he  could  live  in  Indiana.  I  never 
have  suggested  to  anyone,  for  a  fee  or  in  any  other  way,  anything 
that  was  not  such  that  they  could  tell  the  whole  story  to  anyone 
who  had  any  duty  in  the  matter.  'That  story  could  be  told  at  the 
New  York  office.  He  could  say  there,  "I  have  named  the  Union 
Trust  Company  trustee.  I  have  deposited  five  million  bonds  with 
them.  I  have  paid  the  taxes  on  those  bonds  to  the  registrar  of 
deeds  and  the  Comptroller  of  the  State.  They  are  all  tax  paid. 
I  will  show  you  the  list  if  you  would  like  to  see  them."  Then 
he  can  go  away  happy  and  owing  nothing  to  the  State  of  New 
York.  He  could  go  to  the  assessor  here  and  say,  ' '  I  have  deposited 
five  million  'dollars  of  bonds  with  the  Union  Trust  Company  of  New 
York.  They  have  the  title.  I  merely  have  a  reversionary  interest. 
My  wife  is  the  cestui  qw  trust.  She  has  a  right  to  the  income. 
When  the  income  is  here,  if  we  do  not  succeed  in  spending  it 
before  March  1st,  why  then  you  can  ha.ve  some  of  it." 

Now  that  practically  illustrates  what  we  have  done  in  the 
State  of  New  York  on  this  question  of  long  term  debt.  Any  bond 
secured  by  a  mortgage  on  real  property  in  the  State  of  New  York 
is  exempt  from  all  taxation  if  it  pays  one-half  of  one  per  cent, 
at  the  time  of  record.  So,  any  mortgage  that  secures  a  debt  that 
runs  one  year  or  ten  years  or  a  hundred  years — it  doesn't  make 
any  difference. 

Likewise,  you  can  take  any  bond  secured  by  mortgage  on  real 
property  outside  of  the  State,  or  by  deed  of  trust,  or  that  is  a 
mere  debenture  bond,  to  the  Comptroller  of  the  State  or  to  his 
Deputy  in  the  City  of  New  York,  and  have  it  stamped  by  paying 
one-half  of  one  per  cent. ;  and  therefor  that  particular  bond, 
or  evidence  of  debt,  is  forever  exempt  from  further  taxation. 
Deposits  in  savings  banks  are  exempt  from  taxation.  Of  course 
they  only  pay  from  three  to  four  per  cent.,  and  you  cannot  get 

0—848 


^2  INDIANA    UNIVERSITY 

people  to  save  money  on  the  theory  that  they  are  to  get  three  per 
cent,  and  pay  two  per  cent,  to  the  town  in  which  they  live.  They 
will  not  do  it.  They  would  be  like  the  school  teacher  in  Ohio. 
I  cannot  tell  you  the  whole  story,  but  I  can  tell  it  quick.  The 
lady  saved  a  thousand  dollars,  and  she  went  to  the  father  of  a 
friend  of  mine  who  lives  in  New  York.  The  father  lived  in  a  little 
town  in  Ohio,  and  was  a  banker,  and  she  asked  his  advice  as  to 
the  investment  of  the  money.  He  advised  her  to  buy  a  good  safe 
bond  that  would  pay  her  five  per  cent,  and  she  did  so.  And 
then  when  the  time  came  she  made  up  her  tax  list  for  that  year. 
She  had  never  made  up  a  tax  list  before;  hadn't  had  enough  to 
mate  it  seem  worth  while;  and  she  put  in  the  bond.  Bye  and  bye 
she  got  a  tax  bill,  and  the  bill  was  for  fifty-seven  dollars.  She 
went  to  the  tax  collector.  She  was  a  little  amused  about  it.  She 
said,  "Why,  this  is  a  mistake.  I  have  a  bond,  but  the  income 
from  that  bond  is  fifty  dollars,  and  you  have  given  me  a  tax  bill 
for  fifty-seven  dollars."  "No,"  the  tax  collector  said,  "that  is 
right;  the  tax  rate  is  $5.70."  She  says,  "What  on  earth  do  you 
do  with  the  money?"  "Well,"  he  said,  "there  is  the  poorhouse; 
we  have  to  support  that."  She  says,  "That's  where  I  go;  and 
I  blow  this  bond;"  and  she  did.  (Laughter  and  applause.) 

PROF.  J.  J.  M.  LA  FOLLETTE,  of  Bloomington :  Mr.  President — 
There  are  some  inequalities,  we  all  know,  in  the  matter  of  taxa- 
tion,, and  especially  in  administration:  but  Indiana  is  not  as  bad 
off  as  you  might  think,  after  hearing  this  discussion  this  afternoon. 
People  can  live  in  Indiana  with  a  fair  degree  of  comfort  and  be 
happy  and  make  money.  There  is  not  any  need  of  being  dis- 
couraged about  it.  And  in  discussing  this  tax  matter  we  ought 
to  be  careful  not  to  make  it  appear  too  bad.  Let  us  just  be  a 
little  guarded  about  what  we  say  here  and  do,  and  discuss  it  fairly 
and  conservatively,  and  make  some  improvement  in  this  matter  if 
possible,  and  especially  in  administration.  I  think  there  is  really 
the  most  serious  part  of  it. 

There  could  be  some  improvement  in  the  matter  of  taxation 
with  the  adoption  of  the  amendment  to  the  constitution  that  has 
been  submitted  by  Senator  Stotsenburg,  but  let  us  not  get  the 
idea  here  today  that  this  means  necessarily  a  constitutional  con- 
vention. We  can  amend  the  constitution  much  more  easily  and 
with  much  less  expense  and  with  much  more  safety  to  the  State 
<»f  Indiana  not  to  have  a  constitutional  convention,  but  let  it  take 
the  ordinary  process  of  an  amendment  to  the  constitution. 


TAXATION    IN    INDIANA  83 

There  are  a  great  many  theories  that  won't  work  out  in  prac- 
tice, and  I  was  very  much  impressed  with  the  statement  made  by 
Mr.  Link  along  that  line. 

Some  years  ago  a  state  in  this  Union  concluded  that  it  would 
be  wise  to  equalize  the  matter  of  taxation,  especially  as  to  mort- 
gages and  real  estate,  by  passing  a  law  declaring  that  all  mortgages 
should  be  an  interest  and  recognized  as  an  interest  in  real  estate, 
and  be  assessable  and  taxable  at  the  location  or  site  of  the  realty, 
and  that  to  the  extent  that  the  realty  be  mortgaged  the  realty 
itself  should  be  exempt.  It  is  somewhat  akin  to  our  arbitrary 
rule  of  exempting  seven  hundred  dollars,  in  which  there  never  was 
any  reason,  but  yet  which  was  held  to  be  constitutional.  But  in 
this  state  they  exempted  the  entire  amount  of  the  mortgage  from 
the  valuation  of  the  real  estate,  and  taxed  only  the  margin  of  the 
real  estate  to  the  owner,  and  the  mortgage  to  the  mortgagee, 
whether  the  mortgagee  be  a  resident  of  the  state  or  non-resident; 
and  this  rule  would  seem  equitable. 

Here  would  be  a  taxation  of  the  mortgagee  for  the  amount  of 
the  interest  that  he  had  in  the  real  estate,  and  that  would  be 
taxable  and  payable  where  the  real  estate  is;  and  the  margin  of 
the  real  estate  value  would  be  taxable  to  the  owner.  And  that 
would  appear  equitable,  and  that  law  was  held  to  be  constitutional 
in  the  state,  and  constitutional  by  the  Supreme  Court  of  the  United 
States;  but  it  never  has  been  adopted  and  worked  out  as  planned 
because  it  has  been  argued  from  time  to  time  that  it  is  not  a  prac- 
tical theory  to  work  on,  although  it  reasons  out  very  nicely,  because 
it  has  a  tendency  to  keep  money  out  of  the  state,  and  it  makes 
after  all,  necessitates  really,  a  contract  between  the  mortgagor  and 
the  mortgagee,  and  he  pays  just  about  as  much  as  he  would  under 
our  own  Indiana  system. 

So  that  it  is  not  every  theory  that  reasons  out  nicely  and  seems 
a,  valuable  thing  that  will  work  out  in  practice,  and  we  have  to 
consider  that  somewhat;  and  if  there  is  any  purpose  in  this  asso- 
ciation I  am  inclined  to  think  it  would  be  an  advisable  thing  to 
have  a  Tax  Association,  if  they  will  confer  together  with  intelli- 
gence and  consideration  and  a  fair  degree  of  conservatism,  along 
the  lines  that  seem  to  be  advisable ;  but  do  not  let  us  run  off  after 
every  theory  that  happens  to  be  presented  as  a  plausible  thing, 
because  it  will  not  always  work.  (Applause.) 

CHAIRMAN  DUNN:  Before  dismissing  you  gentlemen  I  would 
like  to  add  just  one  word  in  the  line  of  what  has  been  said  by 


84  INDIANA    UNIVERSITY 

the  last  speaker.  I  presume  he  was  referring  to  the  experience 
in  Oregon.  The  idea  there  was  to  make  the  non-resident  mortgagor 
taxable  by  making  his  mortgage  real  estate,  and  exempting  the 
mortgagee's  property  to  that  extent.  It  resulted  at  once  in  an 
agreement  between  the  mortgagor  and  the  mortgagee  that  the  mort- 
gagee should  pay  the  tax.  If  he  didn't  pay  the  tax  he  didn't  get 
the  money.  That  was  all  there  was  about  it.  If  he  paid  the  tax 
the  result  was  just  exactly  what  you  had  before,  that  the  land  was 
taxed  up  to  the  full  amount  and  the  mortgage  was  not  taxed. 

There  was  no  reason  why  a  scheme  of  that  kind  should  spread 
to  any  other  state.  It  was  just  an  elegant  and  elaborate  waste  of 
time  that  didn't  amount  to  anything  at  all. 

Now,  in  regard  to  this  Purdy  proposition,  I  am  not  greatly 
impressed  with  all  these  schemes  of  other  states.  After  reading 
Governor  Dix's  statement  of  the  financial  condition  of  New  York 
—I  think  it  was  a  year  or  so  ago — I  would  not  be  inclined  to  go 
to  New  York  from  Indiana  for  advice  on  the  tax  system ;  and  I 
would  like  to  ask  Mr.  Purdy  in  regard  to  this  scheme  of  his  for 
living  in  Indiana,  if  you  consider  that  a  deposit  of  bonds  or  money 
with  a  trust  company  in  New  York  wipes  that  property  out  of  exist- 
ence? 

MR.  LAWSON  PURDY,  of  New  York:  Why,  Mr.  Chairman,  no. 
But  I  take  it  that  probably  under-  the  Indiana  law  the  condition 
is  the  same  as  under  the  laws  in  other  states  that  I  have  studied, 
that  you  tax  the  legal  holder  of  the  property,  the  person  who  has 
the  legal  title,  and  not  the  beneficiary  of  a  trust  fund. 

CHAIRMAN  DUNN  :  Well,  I  think  we  tax  the  beneficiary  of  the 
trust  fund. 

MR.  LAWSON  PURDY  :  For  the  capital  value  of  the  trust  ?  If 
you  do,  of  course  my  plan  would  not  work  for  the  benefit  of  the 
gentleman  Mr.  Milligan  talked  about.  But  I  do  not,  I  cannot, 
think  that  is  proper. 

MR.  MILLIGAN,  of  Indianapolis:     We  tax  the  trustee. 

MR.  LAWSON  PURDY,  of  New  York :  You  tax  the  trustee.  If 
;i  man  dies  and  leaves  a  fund  to  one  of  your  citizens  as  trustee 
for  the  benefit  of  his  children,  that  citizen  is  taxable  in  reference 
t"  that  fund,  and  not  the  children  of  the  man  who  died.  That 
is  what  I  thought.  The  beneficiary  of  the  trust  is  not  taxable.  It 
is  the  trustee  who  holds  the  property  who  is  taxable. 


TAXATION    IN    INDIANA  85 

I  have  nothing  to  say  about  the  desirability  or  undesirability 
of  it.  I  was  just  trying  to  see  how  I  could  help  that  man,  so  that 
he  could  live  in  Indiana.  (Laughter  and  applause.) 

CHAIRMAN  DUNN  :  The  only  thing  that  struck  me  about  it  was 
this,  that  in  such  a  case  as  that  there  were  in  fact  two  people  who 
were  really  interested  in  that  fund,  the  cestui  qui  trust,  and  the 
reversioner.  The  trustee  is  a  mere  figure  head,  a  man  of  straw, 
and  I  do  not  believe  that  any  such  scheme  as  that  can  be  worked  in 
Indiana.  (Laughter.)  I.  think  the  way  out  of  it— 

MR.  LAWSON  PURDY  :  Ask  counsel  of  the  audience,  Mr.  Chair- 
man. 

CHAIRMAN  DUNN  :  I  think  the  simple  way  out  of  it  in  Indiana 
is  the  customary  way,  and  that  is  simply  to  lie  about  it  in  the  first 
place,  without  going  through  all  this  formula. 

MR.  LAWSON  PURDY  :  We  are  better  trained  than  that  in  New 
York. 

CHAIRMAN  DUNN:  Is  there  anything  further  to  come  before 
the  conference  this  afternoon. 

DR.  WILLIAM  A.  RAWLES  :  Mr.  Chairman — I  should  like  to  re- 
quest, if  there  are  any  members  of  the  conference  who  have  not 
registered  that  they  do  so.  We  wish  to  have  a  complete  record 
of  all  the  persons  attending  this  conference.  We  hope  to  be  able 
to  supply  each  person  with  a  copy  of  the  proceedings. 

I  wish  also  to  say  that  the  meeting  this  evening  begins  at  7 :30, 
and  I  think  we  will  have  three  very  interesting  papers;  and  after 
the  session  is  over  the  visitors  are  invited  to  a  little  refreshment 
by  the  Faculty  Club.  I  believe  that  is  all. 

CHAIRMAN  DUNN  :  The  conference  will  then  stand  adjourned 
until  half  past  seven  this  evening. 

THURSDAY,  FEBRUARY  5— EVENING  SESSION. 

The  convention  was  called  to  order  by  Dr.  Rawles,  pursuant 
to  adjournment. 

DR.  WILL.IAM  A.  RAWLES  :  Ladies  and  gentlemen — I  assure  you 
it  is  a  great  pleasure  to  us  to  see  that  the  various  parts  of  the 
State  of  Indiana  are  represented  here  today.  This  morning  the 
presiding  officer  came  from  the  extreme  northern  part  of  the  state. 


86  INDIANA    UNIVERSITY 

The  presiding  officer  for  the  afternoon  session  was  from  the  central 
portion  of  the  state.  The  presiding  officer  of  the  evening  session 
is  from  the  southern  portion  of  the  state.  It  gives  me  great  pleas- 
ure to  introduce  to  you  Sir.  Marcus  S.  Sonntag,  of  Evansville,  who 
will  preside  this  evening. 

CHAIRMAN  SONNTAG  :  Ladies  and  gentlemen — I  thank  you  very 
much  for  this  honor.  I  came  here  to  listen  today  and  tomorrow, 
and  not  to  be  heard.  As  the  presiding  officer  tonight  was  called 
out  of  the  city,  I  take  great  pleasure  in  trying  to  fill  his  place. 
We  have  but  one  representative  from  Evansville  here  tonight. 
Over  the  long  distance  telephone  I  received  a  message  from  one 
of  our  prominent  attorneys  who  said  that  he  had  overlooked  his 
invitation  to  come  here,  and  was  very  much  disappointed,  after 
reading  some  of  the  proceedings  of  this  meeting  today  in  the  even- 
ing paper,  that  he  was  not  here.  He  intended  to  come.  He  said 
the  people  in  southern  Indiana  were  taking  a  great  interest  in 
this  question,  and  he  hoped  that  something  would  be  started  here 
that  would  give  the  people  that  have  not  been  in  attendance  a 
chance  to  discuss  this  question  before  the  meeting  of  the  Legisla- 
ture ;  and  I  hope  when  this  committee  reports  tonight  they  will  give 
them  that  chance. 

The  first  speaker  of  the  evening  is  Hon.  Lawson  Purdy,  Presi- 
dent of  Department  of  Taxes  and  Assessments,  in  New  York  City, 
and  his  subject  is,  " Recent  Tendencies  in  Taxation." 

RECENT  TENDENCIES  IN  TAXATION 

MR.  PURDY  :  The  American  people  are  supposed  to  be  a  practi- 
cal people  but  in  matters  of  taxation  they  have  been  for  nearly  a 
hundred  years  to  the  highest  degree  theoretical.  Again  and  again, 
they  have  refused  to  revise  their  theories  when  the  theories  have 
broken  down  in  practice  and  been  proved  by  experience  to  be 
erroneous.  It  is  a  curious  fact  that  in  affairs  political  men  will 
adhere  persistently  to  theories  thait  they  fail  to  carry  out  in  prac- 
tice when  in  every  other  branch  of  human  endeavor  they  reject  a 
theory  that  does  not  work. 

Before  the  middle  of  the  nineteenth  century,  a  theory  seems  to 
have  been  adopted  in  most  of  the  states  that  in  order  that  taxation 
should  be  equal,  it  should  be  imposed  equally  on  all  forms  of 
property.  This  theory  appears  to  be  indigenous  to  American  soil. 
So  far  as  known,  it  was  never  heard  of  in  any  other  country  and  its 


TAXATION    IN    INDIANA  87 

practice  was  never  seriously  attempted  by  any  other  people.  It 
seems  possible  it  may  have  originated  from  the  early  practice  of 
roughly  computing  the  tax  that  ought  to  be  paid  by  the  farmers  of 
a  community  by  counting  the  farmer's  acres  and  the  number  of  his 
cattle.  About  1846  a  tax  law  was  enacted  in  Ohio  that  was  intended 
to  secure  the  equal  taxation  of  everything  and  in  1851  the  princi- 
ples of  that  tax  law  were  enacted  in  the  Constitution.  For  thirty 
years,  Ohio  has  been  trying  to  amend  its  Constitution  in  this 
respect  and  so  far  without  success.  Illinois  adopted  a  similar 
provision  in  her  Constitution  about  the  same  time,  and  Minnesota, 
shortly  afterwards,  followed  Illinois.  The  Indiana  Constitution 
appears  to  lay  down  as  strict  a  rule  as  do  the  Constitutions  of  Ohio 
and  Illinois. 

These  iron-clad  Constitutions  practically  permit  no  departure 
from  the  system  known  as  the  General  Property  Tax.  This  system 
takes  no  account  whatever  of  the  difference  in  the  incidence  of 
taxation  upon  different  classes  of  property.  Apparently,  those  who 
adopted  the  theory  of  the  General  Property  Tax  supposed  that  all 
taxes  are  paid  ultimately  by  those  who  pay  them  in  the  first 
instance.  Today,  whatever  theories  we  may  hold  as  to  incidence,  we 
know  perfectly  well  that  some  taxes  are  shifted  and  some  are  not. 
As  a  general  principle,  we  are  practically  all  agreed  that  the  tax 
upon  land  is  amortized  and  immediately  reduces  the  capital  value 
of  land  and  that  such  tax  is  not  shifted  to  the  user  of  the  land,  that 
in  general  taxes  on  things  which  cannot  be  reproduced  are  in  like 
manner  amortized  and  reduce  the  capital  value.  On  the  other 
hand,  we  know  that  generally,  taxes  on  things  capable  of  reproduc- 
tion tend  to  be  shifted  to  the  users  or  consumers  of  the  things.  We 
know  that  there  is  much  economic  friction  and  that  no  economic 
law  works  out  to  its  logical  conclusion  immediately  or  fully  or 
equally  at  all  times  and  in  all  places.  We  do  know,  however,  that 
tendencies  operate  inevitably  and  that  to  a  degree,  the  logical  results 
are  achieved.  The  General  Property  Tax  assumes  an  isolated  com- 
munity unaffected  by  conditions  in  neighboring  communities  and 
uninfluenced  by  the  markets  of  the  world.  It  assumes  an  equality 
of  result  in  the  tax  upon  a  house  and  lot  yielding  five  or  six  per 
cent,  net  to  the  owner  and  upon  the  five  per  cent,  bond  bought  at  a 
price  determined  by  the  world  markets  without  reference  to  taxa- 
tion. It  assumes  equality  of  burden  when  a  tax  is  imposed  on  a 
stock  of  goods  which  is  turned  over  once  in  two  years  and  upon  a 
stock  of  goods  which  is  turned  over  four  times  a  year.  Why  multi- 
ply illustrations?  The  General  Property  Tax  assumes  conditions 


88  INDIANA   UNIVERSITY 

that  never  were  and  never  will  be ;  that  never  can  exist  and  never 
ought  to  exist. 

It  is  but  natural  that  men  have  finally  found  out  that  the  theory 
of  the  General  Property  Tax  never  was  right  and  never  will  work. 
They  have,  therefore,  sought  to  amend  these  Constitutions  that 
prevent  change  and  adaptation  to  new  times  and  new  circum- 
stances. 

The  National  Tax  Conferences  of  the  last  seven"  years  have  been 
an  important  agency  for  moulding  public  opinion  and  this  is  seen 
as  plainly  in  the  movements  to  change  Constitutional  provisions  as 
in  any  other.  In  1907,  the  National  Tax  Conference  unanimously 
adopted  the  following  preamble  and  resolution: 

"  WHEREAS,  the  greatest  inequalities  have  arisen  from  laws  de- 
signed to  tax  the  widely  differing  classes  of  property  in  the  same 
way,  and  such  laws  have  been  ineffective  in  the  production  of 
revenue,  and  whereas  the  appropriate  taxation  of  various  forms  of 
property  is  rendered  impossible  by  restrictions  upon  the  taxing 
power  contained  in  the  Constitutions  of  many  of  the  states; 

Resolved,  That  all  state  constitutions  requiring  the  same  taxa- 
tion of  all  property,  or  otherwise  imposing  restraints  upon  the 
reasonable  classification  of  property,  should  be  amended  by  the 
repeal  of  such  restrictive  provisions. ' ' 

Shortly  after  this  a  committee  of  the  National  Tax  Association 
prepared  suitable  constitutional  provisions  in  relation  to  taxation 
and  recommended  them  to  Arizona  and  New  Mexico.  These  provi- 
sions are  as  follows : 

11  The  power  of  taxation  shall  never  be  surrendered,  suspended, 
or  contracted  away.  All  taxes  shall  be  uniform  upon  the  same 
class  of  property  within  the  territorial  limits  of  the  authority  levy- 
ing the  tax,  and  shall  be  levied  and  collected  for  public  purposes 
only." 

That  re-enacts  the  Fourteenth  Amendment  to  the  Constitution 
of  the  United  States  in  part,  and  that  is  probably  unnecessary,  but 
all  of  it  is  harmless. 

This  recommendation  was  adopted  by  Arizona  in  almost  the 
same  form  as  it  had  been  adopted  by  Minnesota  and  Oklahoma.  It 
has  since  been  submitted  in  several  other  states.  Constitutional 
amendments  have  been  adopted  or  are  now  pending  in  several 
states.  Tin;  Constitutions  of  most  of  the  northeastern  stales  adopted 


TAXATION    IN    INDIANA  89 

at  an  early  da.te,  impose  no  restraint  upon  the  reasonable  classifica- 
tion of  property  for  taxation.  It  is  the  states  that  adopted  Consti- 
tutions in  1850  or  since  that  have  attempted  to  put  most  of  their 
tax  statutes  in  the  Constitution. 

Prior  to  1880,  nearly  all  the  states  depended  almost  exclusively 
upon  the  General  Property  Tax.  In  that  year,  the  State  of  New 
York  began  to  copy  Pennsylvania  which  never  did  have  a  General 
Property  Tax  and  adopted  the  tax  on  corporations  for  state  pur- 
poses. Since  then,  the  State  of  New  York  has  devised  one  tax 
after  another  to  supplement  the  General  Property  Tax  or  in  pail 
to  take  its  place,  until  today  the  aggregate  revenue  from  various 
special  taxes  is  about:  fifty  million  dollars. 

The  State  of  New  York  is  unhampered  by  constitutional  re- 
straints. Other  states  which  enjoy  like  liberty  have  adopted  much 
the  same  policy.  In  recent  years  Connecticut,  Rhode  Island,  Min- 
nesota, Iowa  and  Maryland  adopted  a  low  rate  of  taxation  on 
certain  forms  of  intangible  property  in  place  of  the  ordinary  local 
tax  rate.  This  tax  is  generally  payable  annually,  but  in  Connecticut 
may  be  paid  for  a  period  of  five  years  in  one  payment.  In  1906,  the 
State  of  New  York  adopted  what  is  known  as  the  Mortgage  Record- 
ing Tax.  This  tax  is  payable  at  the  time  a  mortgage  is  recorded 
and  is  at  the  rate  of  one-half  of  one  per  cent,  of  the  principal  sum 
secured  by  the  mortgage.  The  tax  is  the  same  whether  the  mort- 
gage is  for  one  year  or  for  one  hundred  years.  It  is  in  effect  a 
privilege  tax  on  the  recording  of  the  mortgage.  The  yield  of  the 
tax  varies  with  general  commercial  conditions  and  has  amounted  to 
between  three  and  five  million  dollars  a  year.  The  law  provides 
that  mortgages  recorded  prior  to  1906,  and  bonds  secured  by  such 
mortgages,  may  be  made  exempt  from  further  taxation  by  the 
payment  of  a  like  tax.  When  the  tax  is  paid  in  respect  of  a  trust 
mortgage  securing  bonds,  the  bonds  are  all  exempt  from  other 
taxation.  The  general  form  of  this  statute  has  been  followed  by 
several  states,  among  which  are  Alabama,  Michigan  and  Minnesota. 

In  191.1  the  State  of  New  York  adopted  a  similar  form  of  taxa- 
tion for  practically  all  evidences  of  debt  not  payable  within  one 
year  and  not  covered  by  the  recording  tax  act.  This  act  is  known 
as  the  "Secured  Debt  Tax"  and  is  made  as  nearly  like  the  record- 
ing tax  as  practicable.  When  the  tax  is  paid  in  respect  of  a  bond 
or  other  evidence  of  debt,  a  stamp  is  affixed  and  that  evidence  of 
debt  is  exempt  from  further  taxation  during  its  life.  This  statute 
has  been  followed  by  Michigan. 


90  INDIANA    UNIVERSITY 

In  1901  the  State  of  New  York  subjected  banks  and  trust  com- 
panies to  a  tax,  measured  by  their  capital,  surplus  and  undivided 
profits.  The  tax  is  at  the  uniform  rate  of  one  per  cent,  regardless 
of  the  local  tax  rate.  This  plan  was  endorsed  by  a  committee  on 
bank  taxation  of  the  National  Tax  Association.  In  substance,  it 
has  been  followed  by  a  few  states  and  others  seek  to  do  the  same 
thing. 

As  a  practical  question  that  one  per  cent,  tax  on  the  capital, 
surplus  and  undivided  profits  yielded  more  revenue  in  the  State  of 
New  York  the  year  after  its  adoption  than  the  previous  law  which 
imposed  a  tax  upon,  the  market,  value  of  the  shares  at  the  local  rate 
which  then  wasi  over  two  per  cent.  I  was  then  President  of  the  Tax 
Department,  and  as  a  general  rule  it  did  produce  more  money 
throughout  the  state.  In  some  places  it  produced  considerably  less, 
for  it  was  a  fact  that  in  the  State  of  New  York  at  that  time  the 
assessors,  the  local  assessors,  in  assessing  at  alleged  market  value 
varied  all  the  way  from  thirty  per  cent,  to  a  hundred  and  ten  per 
cent. ;  and  in  some  towns*  where  the  rate  of  taxation  was  very 
heavy  it  happened  that  assessors  were  particularly  diligent  to 
assess  bank  shares  at  full  value.  The  banks  sought  redress  on  the 
theory  that  they  were  entitled  to  an  equalization,  but  the  courts 
denied  them  that  relief,  I  think  erroneously,  but  .they  did.  The 
law  has  been  a  great  success.  It  has  been  working  thirteen  years. 

This  paper  is  not  designed  to  be  an  accurate  history  of  recent 
events  nor  a  complete  recital  of  all  the  departures  from  the  General 
Property  Tax  which  have  taken  place  within  the  states.  It  h'as 
been  prepared  hastily,  without  time  to  verify  dates.  In  substance, 
however,  the  statutes  described  sufficiently  illustrate  the  tendency 
throughout  the  United  States  to  depart  from  the  uniform  system  of 
taxation  imposed  by  the  General  Property  Tax. 

So  far,  the  changes  noted  have  had  reference  solely  to  one  form 
or  another  of  personal  taxation.  In  the  case  of  real  estate,  the 
changes  are  of  equal  importance.  A  number*  of  states  have  already 
subjected  public  service  corporations'  property  to  taxation  as  a 
unit,  the  value  being  determined  by  more  or  less  fixed  mathematical 
principles  and  frequently  the  tax  rate  being  at  a  fixed  rate  instead 
of  the  fluctuating  local  tax  rate. 

The  sentiment  of  the  National  Tax  Conferences  has  been  almost 
unanimously  in  favor  of  the  assessment  of  such  property  by  a 
central  board  rather  than  by  local  assessors  and  a  very  general 
sentiment  has  been  evident  that  such  property  should  be  taxed  by 
uniform  rules  and  at  fixed  rates. 


TAXATION   IN   INDIANA  91 

During  the  last  few  years  a  tendency  has  been  evident  to  impose 
a  lower  rate  of  taxation  on  buildings  and  other  improvements  than 
on  land.  This  tendency  has  been  exhibited  in  the  lower  assessment 
of  buildings  at  Houston,  Texas,  and  some  other  places,  even  without 
any  authorizing  statute,  and  it  has  also  been  shown  in  the  Act 
passed  a  year  ago  providing  for  the  reduction  of  the  tax  rate  on 
buildings  in  Pittsburg  and  Scranton,  Pennsylvania,  at  the  rate  of 
ten  per  cent,  every  three  years  until  the  rate  on  buildings  shall  be 
but  one-half  as  much  as  the  rate  on  land.  Bills  to  accomplish  this 
same  result  have  been  introduced  in  the  legislatures  of  various 
states.  Like  movements  have  been  in  progress  in  Eastern  Canada, 
following  the  example  of  the  provinces  of  British  Columbia,  Saskat- 
chewan and  Alberta. 

This  policy  in  regard  to  the  assessment  o-r  taxation  of  buildings 
reverses  the  policy  that  has  been  common  of  assessing  buildings  at 
a  higher  rate  than  land.  Twenty  years  ago  in  the  City  of  New 
York,  it  was  the  policy  to  assess  vacant  land  at  a  smaller  fraction  of 
its  value  than  improved  land.  Today,  the  tendency  is  quite  in  the 
other  direction  in  many  places.  As  the  incidence  of  the  tax  on  land 
and  building  becomes  more  generally  recognized,  it  is  probable  that 
the  movement  to  reduce  the  taxes  on  buildings  will  gather  strength. 
The  owners  of  small  houses  are  coming  to  perceive  that  their 
property  generally  consists  of  two  or  three  parts  building  value  to 
one  part  land  value.  As  the  houses  decline  in  value)  from  age,  the 
land  generally  rises  in  growing  American  cities.  The  home  owners 
object  to  improving  the  value  of  land  for  the  benefit  of  the  owners 
of  unimproved  property.  This  is  one  of  the  arguments  made  for 
the  change  and  it  seems  to  be  growing  in  popularity. 

During  the  last  twenty  years  an  increasing  number  of  states 
have  established  State  Boards  of  Tax  Commissioners.  At  first  these 
boards  generally  had  little  power,  but  their  powers  have  steadily 
increased  until  there  are  several  states,  like  Kansas  and  Wisconsin, 
in  which  the  State  Board  of  Tax  Commissioners  has  almost  absolute 
power  to  enforce  rules  to  govern  the  conduct  of  local  assessors.  In 
these  two  states,  the  State  Board  of  Tax  Commissioners  may  order 
the  re-assessment  of  any  district  and  may  even  re-assess  it  by  its 
own  agents.  As  more  and  more  is  required  of  local  assessors,  there 
is  a  tendency  to  make  their  tenure  of  office  more  certain ;  to  enlarge 
their  jurisdiction  and  increase  their  pay.  Local  assessors  are 
standardizing  their  work;  provide  themselves  with  more  accurate 
maps,;  use  land  value  maps  and  use  rules  for  the  determination  of 
the  value  of  irregular  lots,  short  lots,  deep  lots  and  corners.  They 


92  INDIANA    UNIVERSITY 

are  using  rules  for  the  assessment  of  buildings.     In  a  good  many 
places  now,  land  value  maps  are  published  or  exhibited  in  assessors ' 


I  brought  one  that  was  published  in  New  York,  and  leave  it  here 
so  that  anyone  who  may  be  interested  may  see  it. 

In  some  cities,  as  in  the  City  of  New  York  and  Middleton,  N.  Y., 
the  assessment  roll  is  published.  An  attempt  is  made  to  analyze 
every  assessment  and  give  such  publicity  to  methods  of  assessment 
that  every  person  interested  may  judge  for  himself  of  the  accuracy 
of  the  work  of  the  assessors.  Publicity  is  the  keynote  of  these 
improvements. 

The  sentiment  is  growing  that  the  assessing  system  of  a  state 
should,  in-  very  large  measure,  be  controlled  by  the  State  Board. 
That  in  rural  parts  of  the  state,  the  unit  of  assessment  should  be 
the  county  rather  than  the  town,  as  it  is  in  many  western  states, 
and  that  the  assessors  should  be  appointed  under  strict  civil  service 
rules  by  the  State  Board  rather  than  be  elec/ted  or  appointed  locally. 
This  change  is  necessary  in  order  that  the  assessor  may  have  work 
enough  to  occupy  him  the  entire  year ;  so  that  he  may  devote  all  his 
time  to  his  duties  and  become  an  efficient,  trained  public  servant. 

It  has,  moreover,  become  more  and  more  insisted  upon  by  these 
several  State  Boards  that  the  assessment  shall  be  as  the  law  requires, 
at  full  value*.  There  is  opposition  to  assessment  ait  full  value  by 
many  of  those  who  are  most  interested  in  an  assessment  at  full 
value. 

Just  to  put  a  little  touch  of  human  nature  into  this,  let  me 
describe  an  experience  'when  Mr.  Low  was  elected  mayor  in 
the  City  of  New  Yo'rk,  in  1901.  Some  of  us  had  been  inter- 
ested merely  as  persons  desiring  an  equitable  assessment  of  real 
estate,  in  having  assessments  made  at  full  value — it  had  been  the 
practice  in  the  City  of  New  York  to  assess  at  about  sixty  per  cent. 
of  full  value,  that  is  to  say,  sixty  per  cent,  was  probably  the  aver- 
age. In  many  cases  assessments  were  not  more  than  thirty-five  per 
cent.,  and  in  some  cases  assessments  were  eighty  or  ninety  per  cent., 
that  is  to  say,  they  varied  by  more  than  a  hundred  per  cent.  People 
are  misled  by  saying  one  assessment  is  at  eighty  per  cent,  and 
another  is  at  sixty  per  cent.  They  think  of  it  as  only  twenty  per 
cent,  below,  but  it  is  not.  It  is  twenty-five  per  cent.  If  one  is 
eighty  per  cent,  and  the  average  is  forty,  the  man  at  eighty  is 
paying  on  twice  his  share.  Seth  Low  promised  this  little  group  of 
men  if  elected  mayor  he  would  require  the  Tax  Commissioners  to 


TAXATION    IN    INDIANA  93 

assess  at  full  value.  Another  circumstance  which  cooperated  to 
produce  the  same  result  was  the  fact  that  the  borrowing  power  of 
the  city  depended  upon  the  assessed  value,  and  a  large  borrowing 
capacity  was  greatly  desired.  The  mayor  did  issue  the  order  to  the 
Tax  Commissioners  that  he  appointed  to  bring  about  an  assessment 
at  full  value.  A  certain  group  of  real  estate  owners,  representing 
chiefly  persons  who  owned  tenement  house  property,  appealed  to  the 
mayor  for  a  public  hearing  to  protest  against  this  change  of  policy 
of  disregarding  the  law  in  favor  of  a  policy  of  obedience  to  the  law. 
The  President  of  the  Tax  Department  at  that  time  was  a  good 
friend  of  mine,  and  he  asked  me  to  come  and  represent  the  Board 
and  speak  in  their  behalf  before  the  mayor  at  this  hearing.  I 
arrived  at  the  mayor's  office  a  few  minutes  before  the  hour  set,  and 
found  both  his  large  rooms  and  the  passageway  jammed  with  people 
who  had  come  there  to  protest  against  a  full  value  assessment.  I 
finally  worked  my  way  to  the  front  of  the  crowd,  but  did  not  have 
room  enough  to  move  my  arms.  They  orated  at  the  mayor  and  his 
Tax  Board  for  two  hours,  and  then  those  who  were  in  favor  of  the 
policy  announced  by  the  mayor  were  given  an  opportunity  to  speak. 
I  was  alone,  and  I  said  my  say.  It  was  to  the  effect  that  it  was 
very  extraordinary  that  this  group  of  people  who  owned  property 
that  was  over-assessed  in  proportion  to  the  rest  of  the  real  property 
of  the  city,  should  come  there  protesting  against  having  their  taxes 
reduced. 

Now  if  they  had  stopped  to  consider  the  matter  just  a  little  they 
would  have  known  that  that  was  true,  but  they  did  not.  What  1 
prophesied  of  course  came  true.  Their  property  on  the  average 
was  increased  by,  not  as  much  as  three  quarters  of  the  average 
increase,  for  the  city  tax  rate  fell  from  something  like  $2.30  to 
$1.41,  and  those  people  paid,  every  man  of  them,  less  tax  the  follow- 
ing year  than  he  paid  the  year  before.  And  that  is  the  way  thai 
this  thing  generally  works.  The  little  property  with  which  the 
assessor  is  familiar  is  assessed  at  a  larger  percentage  of  its  actual 
value  than  is  the  property  of  larger  value  with  which  the 
assesso'r  is  not  so  familiar.  That  is  one  of  the  faults  of  assessing, 
that  every  assessing  officer  ought  to  be  familiar  with  and  guard 
against;  and  even  if  he  is  familiar  with  it  and  guards  against,  it 
with  all  the  intelligence  in  his  power,  even  then  he  is  likely  to  have 
a  heavier  burden  on  small  properties  than  on  large  ones. 

When  you  consider  this  full  value  affair,  I  suppose  you  have  a 
condition  such  as  was  described  here  today  as  existing  in  the  City 


94  INDIANA    UNIVERSITY 

of  Bloomington,  and  it  is  no  uncommon  thing.  It  is  the  rule 
throughout  the  United  States — Bunder-assessment — and  the  average, 
let  us  say,  is  fifty  per  cent.  I  do  not  believe  personally  that  Bloom- 
ington is  assessed  much  over  thirty  per  cent.  The  reason  I  say  that 
is  because  I  am  told  that  the  tax  rate  here  is  $4.80.  Now  I  do  not 
believe  that  there  is  any  town  in  Indiana  paying  more  than  one  and 
one-fourth  or  one  and  one-half  per  cent,  on  full  value.  That  is  all 
theory,  based  on  past  experience.  Suppose  it  is  fifty  per  cent. 
Now  the  man  whose  property  is  assessed  at  seventy-five  per  cent,  in 
all  probability  does  not  know  that  he  is  hurt,  and  yet  he  is  paying 
fifty  per  cent,  more  than  his  share,  even  if  the  rule  is  fifty  per  cent. 
There  is  but  little  friction  about  it.  Of  course,  I  am  talking  about 
annual  assessments.  A  quadrennial  assessment  is  really  no  assess- 
ment at  all.  You  want  assessors  on  the  job  three  hundred  days  of 
the  year,  and  thinking  about  it  on  Sundays,  in  order  to  get  your 
assessments  the  way  they  ought  to  be,  Could  there  be  anything  that 
is  more  unfair  than  that  those  whose  property  rises  in  value  should 
get  off  with  less  than  their  share,  whereas  the  people  whose  property 
is  falling  in  value  pay  more  than  theirs  ?  If  you  assess  once  in  four 
years,  and  do  it  with  absolute  accuracy,  that  is  what  must  happen. 
Why,  if  you  could  assess  twice  a  year,  it  would  be  better.  You 
cannot  do  it.  But  if  you  want  fairness  in  this  thing,  you  have  got 
to  have  trained  men  working  all  the  year  round.  Why,  it  is  no 
uncommon  thing  in  an  American  city  for  a  piece  of  land  to  double 
in  value  in  a  year.  I  have  known  land  in  Bronx  Borough  in  the 
City  of  New  York  to  be  sold  three  timesi  in  one  year  for  eight 
thousand,  sixteen  thousand  and  twenty-eight  thousand  dollars,  and 
they  criticise  the  Tax  Department  because  we  assess  it  for  ten 
thousand.  You  have  to  meet  these  things.  People  say  many  times, 
"Oh,  to  assess  property  at  more  than  its  real  value!  That  is 
terrible."  Yes,  it  is  a  pity.  It  is  a  pity  always  to  assess  any 
property  at  more  than  an  average ;  but  an  average  means  that 
there  is  something  above  the  line  as  well  as  below,  and  there  is  the 
advantage  of  assessing  at  full  value.  The  man  whose  property  is 
assessed  at  one  hundred  and  fifty  per  cent,  of  what  it  will  sell  for  is 
apt  to  know  it,  and  he  is  apt  to  make  an  awful  noise.  I  know, 
because  I  have  had  to  do  with  it.  During  the  last  seven  years  I 
have  personally  passed  probably  on  over  fifty  thousand  of  reduc- 
tions of  the  assessed  value  of  real  estate,  and  that  is  some  experi- 
ence. It  is  a  kind  of  hospital  practice ;  you  get  a  lot  of  experience 
into  a  comparatively  short  time.  People  make  a  terrible 


TAXATION    IN    INDIANA  95 

noise  when  their  property  is  assessed  for  more  than  they  think  it 
would  sell  for.  whereas  you  could  go  on  assessing  them  for  years  for 
fifty  per  cent,  more  than  the  average,  if  the  average  were  fifty  per 
cent.,  and  they  would  never  know  the  difference ;  so  that  they  would 
be  paying  fifty  per  cent,  more  than  they  ought  to  pay.  But  I  have 
exceeded  my  proper  time,  and  I  will  conclude. 

This  is  preeminently  the  age  of  efficiency  in  private  business  and 
it  is* certainly  the  age  of  growing  appreciation  of  the  necessity  for 
like  efficiency  in  the  public  business.  The  time  when  men  engaged 
in  public  business  were  looked  down  upon  is  passing,  and  the  time 
is  coming  when  to  be  a  public  servant  will  always  be  a  title  of 
honor.  (Applause.) 

CHAIRMAN  SONNTAG:  "We  have  all  enjoyed  this  excellent  paper 
of  Mr.  Purdy's,  who  is  a  man  of  large  experience,  and  who  has 
come  a  long  way  to  give  us  the  benefit  of  it,  The  next  paper  on  the 
program  is  entitled,  "Some  Features  of  the  Michigan  System,"  by 
Dr.  David  Friday,  Professor  of  Political  Economy,  University  of 
Michigan. 

SOME  FEATURES  OF  THE  MICHIGAN  SYSTEM 

PROFESSOR  FRIDAY:  Mr.  President,  ladies  and  gentlemen- 
Three  kinds  of  taxation  are  possible  in  Michigan.  First,  taxation 
upon  assessment,  by  the  lawful  and  legal  officer,  locally  elected. 
This  must  be  "made  at  the  uniform  rate  within  the  jurisdiction  in 
which  the  property  lies.  Second,  the  assessment  on  what  we  call 
the  average  rate,  the  rate  determined  by  dividing  the  total  assess- 
ment of  all  the  properties  within  the  state  into  the  full  tax  levy 
upon  those  properties.  That  is  an  assessment  made  by  the  State 
Board.  Certain  classes  of  public  service  property  must  be  assessed 
at  that  .average  rate.  Third,  it  is  possible  in  Michigan  to  assess 
property  at  a  specific  rate,  which  rate,  however,  must  not  be  levied 
upon  the  value  of  the  property. 

During  the  last  twelve  years  Michigan  has  made  several  inter- 
esting experiments  in  taxation,  as  a  result  of  which  some  new  lessons 
with  respect  to  what  is  possible  and  desirable  in  the  way  of  tax 
reform  in  that  state  have  been  learned.  It  is  the  purpose  of  this 
paper  to  describe  these  experiments  and  to  set  forth  the  results  and 
the  attendant  lessons  with  the  hope  that  our  experience  may  be 
valuable  as  a  guide  to  other  states.  In  1901  the  tax  upon  gross 
earnings,  which  prevailed  from  1871  to  1901,  was  abandoned  and 


96  INDIANA    UNIVERSITY 

the  ad  valorem  taxation  of  railroads  through  valuation  and  assess- 
ment by  the  state  board  of  assessors  was  substituted  therefor.  This 
board  consists  of  three  members,  who  make  an  annual*  assessment  of 
the  railroads  of  the  state.  The  rate  to  be  levied  upon  the  railroads 
is  determined  by  dividing  the  total  assessment  of  all  other  property 
into  the  entire  taxes  levied  against  such  property,  the  result  being 
termed  the  ' '  average  rate. ' ' 

For  example,  in  1913,  the  local  assessors  in  Michigan  assessed 
the  general  properties  of  the  state  at  $2,345,000,000.  The  total  tax 
levied  against  that  same  property  amounted  to  a  little  over  $50,500,- 
000.00.  By  dividing  $2,345,000,000.00  into  $50,500,000.00  you  get 
$21.56  as  the  rate  which  our  railroads  paid  upon  the  assessment 
placed  thereon  by  the  State  Board  of  Assessors. 

The  consequences  flowing  from  this  change  in  our  basis  for 
taxation  of  railroads  form  one  of  the  most  interesting  chapters  in 
the  history  of  Michigan  taxation  during  the  last  decade. 

A  second  innovation,  made  at  practically  the  same  time,  was  the 
provision  for  and  appointment  of  a  state  tax  commission.  The 
state  tax  commission  consists  of  three  members,  these  being  the 
same  persons  who  constitute  the  state  board  of  assessors  which 
assesses  the  railroads.  This  commission  was  given  power  to  review 
the  assessments  o-f  the  local  assessor,  either  upon  complaint  of  a 
local  taxpayer,  or  of  their  own  motion.  The  appointment  of  this 
commission  with  such  wide  powers  was  a  step  in  the  direction  of 
centralized  supervision  and  control  over  local  assessments.  The 
.methods  employed  by  this  commission  and  the  results  accomplished 
by  it  throw  important  light  upon  both  the  desirability  of  such  a 
commission  and  upon  the  proper  methods  to  be  pursued  and  powers 
to  be  given  it  in  attaining  its  ends.  In  addition  to  the  foregoing 
reforms,  mortgages  and  other  forms  of  bonded  indebtedness  have 
been  exempted  from  taxation  and  a  specific  tax  of  ^  of  1  %  upon  the 
dollar,  to  be  paid  at  the  time  the  mortgage  is  recorded,  has  been 
substituted  in  lieu  of  all  other  taxation.  The  owners  of  vessel  prop- 
erty, too,  are  permitted  in  lieu  of  the  general  property  tax  thereon 
to  pay  a  tonnage  tax  at  a  specific  rate. 

This  latter  change — the  exemption  of  mortgages  and  other  forms 
of  bonded  indebtedness — seems  upon  the  whole  to  have  worked  well 
in  Michigan.  The  only  objection  thereto  that  has  come  to  the 
writer's  notice  is  from  some  township  assessors  in  rural  districts. 
Here,  considerable  amounts  of  mortgages  were  on  the  rolls  in 
certain  townships  and  there  is  some  complaint  that  the  elimination 


TAXATION    IN    INDIANA 


97 


of  such  property  from  the  rolls  has  raised  the  rate  of  taxation. 
This  objection  is  of  no  serious  importance.  The  small  number  of 
districts  thus  affected  and  the  trifling  increase  in  their  rate  of 
taxation,  because  of  the  exemption  of  mortgages,  makes  the  ob- 
jection almost  negligible. 

"We  are  satisfied  with  the  exemption  of  mortgages  and  the  sub- 
stitution for  the  tax  on  mortgages  of  a  registry  fee  of  fifty  cents  a 
hundred. 

One  reform  which  is  of  particular  interest  and  which  warrants 
further  discussion  is  the  assessment  and  taxation  of  the  railroad, 
express,  car  loaning,  telegraph  and  telephone  companies  on  the  ad 
valorem  basis — that  is,  on  the  basis  of  their  "actual  cash  value,"  as 
the  law  puts  it. 

As  stated  above,  this  assessment  is  to  be  made  by  the  state  board 
of  assessors — a  body  of  three  members,  together  with  the  Governor, 
who  is  ex-offido  a  member  of  said  board.  The  personnel  of  this 
body,  is  identical  with  the  personnel  of  the  tax  commission.  We 
have  therefore  vested  in  the  same  board  the  obligation  to  value  and 
assess  the  railroads  and  these  other  public  service  properties  enu- 
merated, and,  also,  the  authority  to  review  the  work  of  the  local 
assessor,  for  the  purpose  of  making  his  assessments  conform  to  that 
part  of  the  law  which  provides  that  the  assessment  of  all  property 
—tangible  as  well  as  intangible — shall  be  made  at  actual. cash  value. 
For  it  is  quite  evident  if  they  average  the  rate  on  railroads,  and 
railroads  are  assessed  at  one  hundred  per  cent,  of  their  value,  while 
the  other  properties  of  the  state  were  at  fifty  per  cent,  then  the  rate 
would  be  too  high,  and  the  railroads  would  pay  a  disproportionate 
amount  of  the  taxes  in  Michigan.  Let  me  add,  parenthetically,  that 
we  have  no  county  assessors  such  as  you  have  in  Indiana. 

We  have  then,  in  Michigan,  an  attempt  to  apply  the  general 
property  tax  to  practically  all  property  with  assessment  by  two 
different  classes  of  assessing  officers.  First,  all  property  upon  the 
local  rolls,  either  township  or  state,  is  assessed  by  the  local  assessing 
officers,  locally  elected.  This  assessment  is  subject  to  review  by  a 
local  board  and  may,  also,  be  reviewed  by  the  state  tax  commission. 
We  have,  second,  the  assessment  of  the  railroads  and  certain  other 
classes  of  public  service  property  by  the  state  board  of  assessors. 
The  assessments  of  this  body  are  not  subject,  to  review  by  any  other 
board.  As  was  stated  above,  the  rate  which  is  applied  to  the  assess- 
ment placed  upon  the  railroads  by  the  state  board  is  determined  by 
the  ratio  of  taxes  levied  upon  all  other  property  to  the  assessment 

7—848 


98  INDIANA    UNIVERSITY 

thereof,  as  made  by  the  local  assessing  officers,  and  reviewed  either 
by  the  local  board  of  review,  or  the  state  tax  commission. 

What  are  the  results  that  have  been  attained  under  this  general 
scheme  of  local  administration  in  the  assessment  of  general  prop- 
erty, with  a  power  of  review  lodged  in  a  central  body,  the  state  tax 
commission  ? 

First,  it  should  be  said  by  way  of  preliminary  statement,  that  in 
Michigan,  as  elsewhere,  the  burden  of  taxation  has  increased  rap- 
idly during  the  last  twelve  years,  not  only  as  expressed  in  the 
absolute  amount  of  taxes  levied  but  also  as  regards  the  rate  on 
assessed  value.  In  1901,  the  total  taxes  raised  in  the  state  were 
$23,350,000.  In  1906,  five  years  later,  they  stood  at  $26,330,000. 
This  year  they  stand  at  $50,569,000.  During  the  five-year  period, 
1901-1906,  a  considerable  activity  on  the  part  of  the  tax  commission 
in  reviewing  the  assessments  of  the  local  assessors  succeeded  in 
actually  reducing  the  average  rate  of  taxation  from  $17.49  per 
thousand  to  $16,47  per  thousand.  In  1913  the  total  taxes  raised  on 
the  general  properties  amounted  to  $50,569,000  and  the  average 
rate  was  $21.56.  Let  us  keep  in  mind  that  this  is  the  rate  which 
was  applied  to  the  assessment  placed  upon  the  railroads  of  the 
state,  as  compared  with  $16.47  per  thousand  in  1906.  The  assess- 
ment of  the  railroads  is  at  just  as  high  a  per  cent,  of  cash  value  as 
it  was  at  that  time,  that  is,  probably,  full  cash  value. 

By  1906,  two  facts  were  evident:  First,  that  the  interference 
with  local  government  occasioned  by  the  reviews  of  the  state  tax 
commission  was  being  resented,  for  the  legislature  of  that  year 
decidedly  curtailed  the  power  of  the  commission  by  taking  from 
them  the  right  to  initiate  reviews  of  their  own  motion  and  allowing 
them  to  review  only  upon  the  complaint  of  taxpayers,  resident  in 
the  local  jurisdiction.  It  had  further  become  evident  that  the 
general  properties  of  the  state  were  assessed  by  the  local  assessor 
at  a  figure  decidedly  below  their  actual  cash  value,  as  provided 
by  law,  and  that,  in  consequence,  the  average  rate  borne  by  the 
railroads  was  higher  in  proportion  than  that  borne  by  the  general 
properties  throughout  the  state.  The  legislature  provided,  there- 
fore, that  the  tax  commission  should  estimate  the  percentage  of 
cash  value  at  which  the  property  throughout  the  state  was  actually 

ssed  and  should  reduce  the  average  rate  proportionately  for 
the  purpose  of  railway  taxation.  To  illustrate:  If  it  were  found 
that  the  ratio  of  assessment  to  actual  value  throughout  the  state 
was  70  IMM-  cent,  and  the  average  rate,  obtained  by  dividing  the 


TAXATION    IN    INDIANA  99 

total  assessment  into  the  total  taxes,  was  $16.47  per  thousand, 
then  the  rate  to  be  levied  upon  the  railroads  should  be  70  per  cent, 
of  $16.47  or  $11.53  per  thousand. 

The  purpose  of  this  law  is  evident.  It  was  felt  that  the  rail- 
roads, after  the  Cooley-Adams  appraisal,  as  it  is  commonly  called, 
had  been  assessed  at  approximately  their  full  value.  The  theory 
of  the  law  was  clearly  that  railroads  should  bear  the  same  burden, 
dollar  for  dollar,  as  other  property  bore  on  the  average.  Clearly, 
then,  it  was  necessary  to  reduce  the  average  rate  as  shown  by  the 
local  tax  rolls  by  the  per  cent,  of  underassessment  found  upon 
such  local  rates.  This  law,  however,  permitting  the  Tax  Commis- 
sion to  so  reduce  it,  was  declared  unconstitutional  by  the  Supreme 
Court  of  the  State,  and  from  1906  to  1913,  the  railroads  have  con- 
tinued to  be  assessed  at  approximately  their  full  value,  while  the 
average  rate  has  risen  from  $16.47  per  thousand  in  1906  to  $21.56 
in  1913,  this  being  the  rate  that  our  railroads  will  pay  this  year. 

It  will  be  asked  how  we  know  that  the  railroads  are  assessed 
at  their  full  cash  value.  Our  railroads  in  Michigan  have,  upon 
the  average,  for  the  last  five  years,  had  left,  after  paying  their 
taxes,  about  ten  million  dollars  of  profits  to  be  distributed  among 
stockholders  and  bond  holders  and  to  be  reinvested  in  the  property. 
Now,  if  you  purchased  the  railroads  of  Michigan  at  a  figure  such 
that  the  profits  made  by  them  would  yield  you  five  per  cent,  on 
your  money,  you  would  pay  less  than  the  present  assessment  of 
those  roads.  If  you  bought  them  at  their  assessed  value  today 
you  would  not  get,  one  year  with  another/  five  per  cent,  on  your 
money,  if  they  paid  over  every  cent  of  earnings  in  dividends  and 
interest;  and  surely,  in  a  state  like  Michigan,  five  per  cent,  is  as 
low  a  rate  of  capitalization  as  can  possibly  be  applied  to  railroad 
properties  in  determining  their  value. 

This,  then,  is  one  of  the  striking  facts  about  the  Michigan  situa- 
tion today,  as  it  has  come  to  exist  under  the  workings  of  our  gen- 
eral property  tax  system  applied  to  all  property,  including  the 
railroads.  We  have  a  state  with  an  average  assessment  for  general 
property  of  approximately  65  per  cent,  of  actual  value  as  estimated 
by  the  tax  commission.  We  have  a  full  cash  value  assessment  of 
railroads  made  by  a  central  board,  after  appraisal.  The  rate  paid 
by  general  properties  on  the  65  per  cent,  valuation  is  imposed  upon 
the  railroads  who  are  assessed  at  full  value.  The  original  intent 
of  the  law  evidently  was  that  inasmuch  as  the  state  board  of  assess- 
ors was  authorized  to  assess  the  railroads  at  full  value,  they  should. 


100  INDIAN  \     rMVERSITY 

also,  have  the  power  to  review  nil  properties  throughout  the  state 
and  bring1  them  1o  full  value.  Although  they  were  given  this 
power — which  was  taken  away  in  1906  and  restored  in  1911 — they 
have  not  been  able  to  exercise  it  in  such  manner  as  to  carry  out  the 
original  intent  of  the  law,  and  do  justice  to  railroads  and  other 
public  service  property. 

This  points  to  a  serious  weakness  in  the  particular  method  of 
central  supervision  of  local  assessments,  provided  by  the  Michigan 
system.  The  various  tax  commissions  which  have  held  office  since 
the  original  creation  of  the  body  have  without  doubt  been  most 
desirous  of  insuring  that  the  railroads  be  justly  dealt  with  under 
the  present  system,  but  the  mere  power  of  review  even  on  their 
own  initiative  does  not  seem  to  be  adequate  to  make  it  possible 
for  the  commission  to  accomplish  its  purpose.  This  is  of  impor- 
tance for  any  state  desiring  to  establish  an  effective  tax  commission, 
or  give  the  tax  commission  already  established  effective  powers. 
It  is  patent  to  all  who  are  conversant  with  the  situation  in  Michi- 
gan today,  that  while  the  railroads  are  paying  $21.56  per  thousand 
on  their  full  value,  other  properties  throughout  the  state  are  paying 
only  65  per  cent,  of  this  rate,  or  $14.00  per  thousand  on  their  full 
value.  It  is  interesting  to  compare  the  tax  burden  borne  by  our 
Michigan  roads  with  that  of  the  railroads  of  the  United  States 
as  a  whole  and  of  neighboring  states  for  the  purpose  of  enforcing 
the  point  that  Michigan  railroads  are  being  discriminated  against 
under  the  present  system. 

An  examination  of 'the  net  earnings  from  operation  of  all  the 
railroads  of  the  United  States,  as  compared  with  the  taxes  paid 
by  them,  gives  the  following  results.  In  1901,  the  percentage  of 
taxes  to  net  revenue  from  operation  was  10.22.  This  percentage 
dropped  in  1902  to  8.92  and,  since  that  time,  has  gradually  in- 
creased until  in  1911,  the  last  date  at  which  figures  were  available, 
it  stood  at  12.36.  Taking  an  average  for  these  eleven  years,  we 
obtain  10.30  as  the  per  cent,  of  taxes  to  total  net  revenue  from 
operation  for  the  railroads  of  the  entire  country.  It  should  be 
borne  in  mind  that  "net  earnings  from  operation"  represents 
earnings  before  any  taxes  or  fixed  charges  in  the  way  of  interest 
on  bonds  have  been  deducted.  If  we  compare  with  this  the  results 
from  Michigan,  we  find  that  in  Michigan  the  per  cent,  of  taxes- to 
nH  revenue  from  operation  ranges  from  26.99,  approximately  27, 
rent,  to  35.16  per  cent. — the  lowest  per  cent,  being  in  the  year 
;ind  the  highest  in  the  year  1911.  For  the  eleven  years, 


TAXATION    IN,  INDIANA*  ^  101 

1902-1912,  the  average  percentage  of  taxes  to  net  revenue  is  ap- 
proximately 30  per  cent.  The  conclusion  would  seem  to  be  then 
that  taking  the  per  cent,  of  tax  to  net  earnings  from .  operation 
as  a  basis  of  comparison,  the  railroads  of  Michigan  are  bearing 
three  times  the  tax  burden  that  is  being  borne  by  other  railroads 
in  this  country. 

Again,  if,  for  the  roads  owned  and  operated  in  Michigan,  we 
compare  the  sections  within  Michigan  with  the  entire  line, — for 
example  that  section  of  the  Lake  Shore  and  Michigan  Southern 
operating  within  Michigan  with  the  other  sections  of  the  road, — 
the  results  are  as  follows.  For  the  years  1909,  1910,  and  1911,  the 
railroads  of  Michigan  paid  respectively  29  per  cent.,  24  per  cent, 
and  35  per  cent,  of  their  total  net  revenue  in  taxes.  If  we  take 
the  entire  system  that  operates  either  in  part  or  in  whole  in  Michi- 
gan, we  find  the  per  cent,  of  taxes  to  total  net  revenue  from  oper.a- 
tion  to  be  12.85,  12.58,  15.49  respectively  for  the  years  1909  to 
1911.  The  burden  in  Michigan  then  is  more  than  twice  as  heavy 
as  it  is  in  the  neighboring  states  through  which  roads  operate  that 
are  also  operating  in  Michigan.  Putting  these  facts  in  a  slightly 
different  way,  we  find  that  the  per  cent,  of  total  net  revenue  from 
operation  in  Michigan  to  total  net  revenue  of  the  entire  line  is  upon 
the  average  16  per  cent.,  while  the  per  cent,  of  taxes  paid  in  Michi- 
gan to  total  taxes  paid  by  such  lines  is  35  per  cent.  There  can  be 
no  question,  therefore,  that  our  method  of  taxing  railroads,  as 
above  described,  has  led  to  the  imposition  of  a  much  heavier  burden 
upon  Michigan  railroads  than  upon  those  in  neighboring  states. 
Similar  results  are  obtained  by  comparing  the  percent  of  tax  to 
gross  revenue  with  the  percentage  that  is  paid  in  such  states  as 
Minnesota,  which  have  a  gross  revenue  tax.  The  percent  of  tax 
to  gross  revenue  in  Michigan  has  been  for  the  last  11  years  more 
than  6  per  cent.,  in  Minnesota  for  the  greater  portion  of  that 
period,  it  was  4  per  cent.  It  has  now  been  increased  to  5  per  cent. 
If  we  examine  the  rate  borne  by  railroads  in  Wisconsin,  which  state 
has  also  a  system  of  assessment  and  taxation  on  the  ad  valorem 
basis,  administered  by  a  tax  commission,  we  find  that  there  the 
rate  for  railroads  has  remained  steadily  at  a  trifle  over  $11.00, 
whereas  in  Michigan,  it  has  increased  from  $16.55  to  $21.56.  The 
general  conclusion  stated  above,  that  our  new  system  of  taxing 
railroads  has  failed  to  do  justice  to  these  public  service  properties 
is  supported  by  the  facts. 

The  facts  which  have  just  been  recited  are  shown  in  detail 
by  the  following  tables: 


102 


INDIANA    UNIVERSITY 


MICHIGAN 


Year 

Gross 

Net 

Net 

Per  Ct. 

Per  Ct. 

Ending 
June 

Earnings 
from 

Operating 
Expenses. 

Earnings 
from 

Earnings 
Less 

Assessed 
Valuation. 

Tax 
Levied. 

of  Tax 
to 

of  Tax 
to 

30th. 

Operation. 

Operation. 

Taxes. 

Gross. 

Net. 

1902... 

$45.820,215 

$35,510,219 

$10,309,996 

$8,826,060 

$198,641,000 

$3,288,162 

7.17 

31.90 

1903 

51,559,605 

40,588,230 

10,971,375 

7,683,213 

222,106,000 

3,756,149 

7.28 

34.24 

1904... 

51,715,342 

41,615,736 

10,099,606 

6,343,457 

196,795,000 

3,330,350 

6.44 

32.97 

1905     .. 

54,741,979 

44,549,709 

10,192,270 

6,861,920 

202,651,000 

3,527,059 

6.44 

34.60 

1906... 

60,458,895 

47,824,590 

12,634,305 

9,107,246 

207,068,000 

3,409,915 

5.64 

26.99 

1907.... 

66,259,937 

53,981,051 

12,278,886 

8,868,971 

207,130,500 

3,650,132 

5.51 

29.75 

1908.... 

63,235,347 

50,007,804 

13,227,543 

9,577,411 

207,305,000 

3,713,155 

5.87 

28.07 

1909... 

63,667,477 

48,646,151 

15,021,326 

11,288,171 

211,764,500 

4,377,871 

6.88 

29.14 

1910.... 

72,025,499 

53,839,115 

18,186,384 

13,808,513 

211,716,000 

4,346,841 

6.03 

23.90 

1911.... 

71,972,549 

59,535,960 

12,436,589 

8,089,748 

211,075,500 

4,372,145 

6.07 

35.16 

1912.... 

76,097,686 

61,192,823 

14,904,863 

10,532,718 

210,884,500 

4,387,019 

5.76 

29.44 

1913.... 



218,246,500 

*4,  705,  000 

'Approximate. 


RAILWAYS  IN  THE  UNITED  STATES,  CONSIDERED  AS  A  SYSTEM 


Year. 

Total  Net 
Revenue  from 
Operation. 

Taxes. 

Per  Cent  of  Taxes 
to  Total  Net  Reve- 
nue from  Operation  . 

1901 

$558,128,767 

$56,944,372 

10  22 

1902...                                          
1908 

610,131,520 
643,308,055 

54,465,437 
57,849,569 

8.92 
8  99 

1904 
1S05 

636,277,838 
691,880,254 

61,696,354 
63,474,679 

9.69 
9  17 

1106  
1907 

788,887,896 
840,589,764 

74,785,615 
80,312,375 

9.47 
9  55 

1908 

724,258,113 

£4,555,146 

11  67 

1909  
1910 

819,234,128 
928,037,002 

90,529,014 
103,795,701 

11.05 
-11  18 

1911  

876,103,870 

108,309,512 

12.36 

Total  

$8,116,837,207 

$836,717,774 

10.30 

TAXATION    IN    INDIANA 


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104  INDIANA     TNIYKUSITY 

The  existence  of  the  facts  above  cjted  led  the  legislature  to  pro- 
vide in  1911  for  the  appointment  of  a  special  commission  to  inquire 
into  taxation,  consisting  of  three  members,  for  the  purpose  of 
reviewing,  investigating  and  inquiring  into  the  entire  system  of 
taxation  in  the  state  of  Michigan.  A  strong  suspicion  that  the 
powers  given  the  Tax  Commission  did  not  secure  justice  for  the 
railroads,  was  one  of  the  reasons  for  the  appointment  of  this  body. 
This  commission,  contrary  to  the  procedure  of  most  other  special 
commissions  that  we  have  had,  did  not  examine  so  much  into  the 
question  of  the  geographical  distribution  of  the  state  taxes. 

This  commission  was  to  submit  its  findings  in  a  report  to  the 
Governor.  After  nearly  a  year's  work  spent  in  investigating  the 
situation  in  the  state,  the  commission  made  a  report  which  throws 
considerable  light  upon  the  reasons  for  the  excessive  taxation  of 
railroads  and  upon  the  general  reasons  for  under-assessment  of 
property  throughout  the  state.  The  findings  of  the  commission 
are  shown  in  compact  manner  by  the  following  statement  of  results 
from  their  report. 

1  'After  the  most  full  and  careful  investigation  which  the  time 
allotted  for  the  Commission's  work  would  permit,  one  most  im- 
portant fact  was  disclosed.  The  fact  is  the  gross  under-valuation 
and  under-taxation  of  the  property  of  corporations  assessed  and 
taxed  under  the  general  tax  law  as  compared  with  all  other  prop- 
erty of  the  state.  Viewed  from  any  standpoint,  whether  it  be 
from  that  of  reference  to  corporate  property  in  general  or  with 
respect  to  the  valuation  of  distinct  properties  and  the  comparison 
of  their  values  with  the  assessed  values  and  taxes  paid,  the  same 
result  is  disclosed,  namely :  That  corporate  property  assessed  under 
the  general  tax  law  is  very  generally  and  almost  uniformly  valued 
and  taxed  at  a  small  fraction  of  its  worth.  This  claim  is  substan- 
tiated by  the  following  table.  It  gives  the  rate  of  taxes  per  thou- 
sand of  actual  value  for  farms,  banks,  residences,  railroads,  manu- 
facturing corporations,  public  service  corporations  and  mines.  It 
also  gives  a  comparison  of  the  value  and  taxes  paid  by  each  of  these 
classes  except  residences: 


TAXATION    IN    INDIANA 


Kind  of  Property  and  Basis  of  Computation. 

Value. 

Tax. 

Rate  Per  $1,000. 

City  Real  Estate- 
Examination  of  verified  sales,  38,000  pieces  in 
90  cities.    Taxes  at  actual  rate  for  each 
locality.    Rate     ranges    from    $11.22     in 
Ben  ton  Harbor  to  $25.80  in  Cheboygan     . 

$14  85 

Farms  — 
Census  reports,  also  examination  of  over  32,000 
descriptions  
Banks  and  Trust  Companies  — 
Reports  to  Banking  Commissioner  and  Comp- 
troller of  Currency.      Basis,  net  earnings, 
also  capital,  surplus  and  undivided  profits. 
Railroads  — 
State  Board  of  Assessors,  1909  

$1,000,000,000 

75,000,000 
212,000,000 

$10,000,000 

1,250,000 
4,378,000 

10  00 

17.00 
20  65 

Sleeping  Car,  Express,  Car  Loaning  and  Telephone 
and  Telegraph  Companies  — 
State  Board  of  Assessors,  1909  
Manufactures  — 
Reports   to    United   States   Commissioner  of 
Internal     Revenue;     also    census    reports 
showing  taxes  paid 

24,000,000 
750,000,000 

493.000 
3,938,00;) 

20.67 
5  30 

Finlay  report,  with  an  amount  added  to  cover 
properties    not    included    therein.    Taxes 
computed  from  reports  of  supervisors  to 
Tax  Commission,  at  actual  rates  in  the 
several  districts  

250,000,000 

*  1,750,  000 

7.00 

Electric  Railway,  Power,   Heat,   Light  and  Gas 
Companies  — 
Reports   to   United   States   Commissioner   of 
Internal  Revenue  and  Michigan  Railroad 
Commission.    Taxes    paid    by    gas    com- 
panies from  United  States  Census  report.  . 

130,000,000 

900,000 

7.03 

*Previous  to  Finlay  appraisal. 

It  will  be  observed  that  this  statement  of  results  says  nothing 
with  respect  to  the  relative  burden  borne  by  different  counties  on 
account  of  the  state  tax,  which  in  Michigan  is  spread  as  a  supertax 
in  addition  to  the  local  rate.  This  is  significant.  An  examination 
of  the  ratio  of  state  taxes  to  total  taxes  in  our  state  shows  that 
state  taxes  are  on  the  average  not  more  than  15  per  cent,  of  all 
taxes  levied.  Whatever  inequality  there  may  be  as  between  coun- 
ties on  account  of  an  improper  equalization  of  the  state  tax  among 
them  must  be  very  trifling,  as  compared  with  inequalities  arising 
out  of  the  improper  apportionment  of  the  remaining  85  per  cent, 
through  unequal  assessments  in  the  local  jurisdiction.  In  Michi- 
gan, as  elsewhere  in  our  states,  the  state  tax  is  a  very  small  amount 
of  all  the  taxes  imposed.  The  amount  of  purely  local  taxes  in  the 
city  of  Detroit  exceeds  by  25  per  cent,  the  total  state  tax  for  the 
State  of  Michigan.  Out  of  the  fifty  million  dollars  raised  in  the 
state  this  year,  twenty-five  million  were  school  and  general  city 
taxes.  In  addition  to  this,  six  million  dollars  is  collected  from  the 
railroads  and  other  public  service  corporations  which  is  distributed 
to  the  local  school  districts  by  the  state  and  should  really  be  added 
to  this  twenty-five  million  to  give  an  adequate  idea  of  the  prepori- 


106  INDIANA    UNIVERSITY 

derance  of  local  taxes  in  the  modern  budget.  The  overwhelming 
preppnderance  of  local  expenditure,  when  once  it  is  realized,  shows 
conclusively  that  no  great  relief  as  regards  inequality  in  taxation 
can  be  expected  through  separation  of  sources  for  state  and  local 
taxation.  An  examination  of  the  findings  just  cited  discloses  the 
fact  that  the  greatest  inequalities  exist  within  the  local  jurisdiction 
as  between  the  different  classes  of  property  there  assessed  by  the 
locally  elected  officer.  The  conclusion  from  which  one  cannot 
escape  after  examining  the  facts  cited  by  this  commission — and 
these  facts  have  not  been  successfully  controverted — is  that  the 
attempt  to  administer  the  general  property  tax  through  locally 
elected  officers,  responsible  only  to  a  local  constituency,  has  been 
a  miserable  failure.  In  the  city  of  Detroit,  as  well  as  in  our  other 
cities  which  contain  large  public  service  corporations  and  manufac- 
turing plants,  it  is  not  an  uncommon  occurrence  to  find  plants  that 
are  assessed  at  from  ten  to  twenty  per  cent,  of  the  value  shown  by 
their  own  balance  sheets.  The  railroads  and  some  other  public 
service  properties  assessed  by  the  board  of  assessors,  a  body  ap- 
pointed by  and  responsible  to  the  Governor  of  the  state,  are  effect- 
ively assessed.  The  properties  of  the  state  assessed  by  local  assess- 
ors are  assessed  at  anywhere  from  ten  to  seventy  per  cent,  of  cash 
value  in  the  same  jurisdiction. 

The  causes  for  the  under-assessment,  especially  of  manufactur- 
ing and  public  service  properties,  are  not  far  to  seek.  First,  the 
ordinary  local  assessor  with  a  limited  experience  and  limited 
knowledge  of  corporate  affairs  lacks  the  ability  to  arrive  at  a  fair 
and  full  value  of  great  industrial  establishments.  A  considerable 
degree  of  special  knowledge  with  respect  to  the  conditions  of  the 
particular  business  is  required  to  make  an  adequate  evaluation  for 
any  purpose.  This  the  local  assessor  usually  lacks.  A  humorous 
incident  that  has  come  to  the  writer's  notice  recently  is  that  of  a 
local  assessor  who  assessed  the  contents  of  the  buildings  of  one  of 
our  electric  power  companies,  consisting  of  sixteen  oil  transformers, 
worth  approximately  $500,000,  as  "sixteen  second-hand  boilers  at 
$500  each,  total  $8,000.  Evidently,  this  man's  technical  knowl- 
edge was  not  adequate  to  place  an  intelligent  valuation  upon  the 
piece  of  property  under  discussion. 

When  the  state  board  of  assessors  was  called  upon  to  assess  the 
railroads,  their  inability  to  put  an  intelligent  valuation  upon 
these  properties  led  them  to  avail  themselves  of  the  services  of 
expert  engineers  and  statisticians.  Although  the  work  of  these 
men  has  been  the  subject  of  some  considerable  criticism  by  the 


TAXATION    IN    INDIANA  107 

railroads  and  others,  their  valuation  was  probably  adequate  to  do 
substantial  justice,  if  other  properties  throughout  the  state  had  been 
as  carefully  evaluated  and  assessed.  This  lack  of  special  knowledge 
on  the  part  of  the  local  assessor  is  an  insuperable  obstacle  to  ade- 
quate assessments  of  most  of  our  manufacturing  and  public  service 
property. 

Even  if  the  local  assessor  were  capable  of  making  an  adequate 
valuation  for  purposes  of  assessment,  the  mere  fact  that  he  is  locally 
elected  makes  him  subject  to  local  influences  which  seemingly  make 
it  inexpedient  for  him  to  place  fair  values  upon  many  classes  of 
property.  The  tendency  of  municipalities  to  accord  to  manufac- 
turing corporations  partial  exemption  from  taxation  as  an  induce- 
ment to  settle  within  their  limits,  is  too  well  known  to  need  more 
than  passing  mention.  It  seems  pretty  clear  from  our  Michigan 
experience, — and  our  Michigan  experience  has  not  been  different 
from  that  of  most  states, — that  the  local  assessor  cannot,  unaided, 
efficiently  assess  certain  classes  of  property.  Uniformity  of  assess- 
ments, either  within  the  same  assessing  districts,  or  as  between 
the  different  assessing  districts  of  the  state,  will  not  be  attained 
under  this  system. 

But  what,  it  will  be  asked,  has  your  state  tax  commission  been 
doing  in  face  of  all  these  facts'?  Our  commission,  aside  from 
assessing  the  railroads  and  other  classes  of  property  which  come 
under  its  jurisdiction  in  its  capacity  of  state  board  of  assessors, 
has,  since  the  restoration  of  its  powers  in  1911,  constituted  itself  a 
re-assessing  board.  It  has  selected  those  counties  from  which  com- 
plaints have  been  made  to  the  commission,  as  well  as  other  counties 
in  which  it  has  observed  extreme  under-assessment  of  property, 
for  invasion  by  a  corps  of  fieldmen  of  experience  and  capacity  as 
assessors  and  has  re-assessed  such  counties.  This  method  of  proce- 
dure together  with  the  growth  of  property  in  the  state  has  added 
$500,000,000  of  property  to  our  rolls  within  the  last  two  years, 
increasing  the  total  assessment  by  38  per  cent.  So  rapid  has  been 
the  increase  of  expenditure,  however,  that  the  average  rate  has 
risen  within  this  same  period  from  $20.71  in  1911  to  $21.56  in 
1913.  At  the  present  rate  of  progress,  it  will  take  the  commission 
some  ten  years  to  re-assess  the  entire  state  and  I,  for  one,  have  but 
small  hope  for  the  effectiveness  of  a  review  which  shall  occur  only 
once  in  a  decade.  Mr.  Purdy  says  even  an  assessment  once  in  four 
years  is  no  assessment,  and  certainly  an  assessment  once  in  ten 
years  is  not. 

The  present  commission  is  inaugurating  the  policy  of  offering 


108  INDIANA    UNIVERSITY 

its  services  or  the  services  of  its  field  men  to  the  local  assessing 
officers  who  desire  such  services.  They  have  no  power  to  force 
these  men  upon  the  local  officers  nor  have  they  power  to  remove 
any  local  assessor  who  is  known  wilfully  to  undervalue  his  property 
in  violation  of  law.  Whether  the  local  assessors  will  avail  them- 
selves of  this  offer  of  the  tax  commission  remains  to  be  seen. 

We  are,  in  Michigan,  still  making  the  ridiculous  attempt  to 
assess  personal  property,  including  money  and  credits, — the  only 
exception  being  that  of  the  exemption  of  mortgages,  above  enum- 
erated. At  present,  about  20  per  cent,  of  all  property  upon  the 
rolls  is  personal  property.  It  is  difficult  to  say  .just  what  propor- 
tion of  this  consists  of  money  and  credits.  An  examination  made 
several  years  ago  by  the  state  tax  commission  upon  this  point 
showed  that  at  that  time  only  2J  per  cent,  of  the  total  assessments 
of  the  state  consisted  of  money  and  credits,  nor  have  the  efforts  of 
the  tax  commission  availed  to  increase  this  percentage  materially 
within  the  last  ten  years. 

The  experience  of  Michigan  for  the  last  decade  yields  the  fol- 
lowing lessons: 

1.  The  administration  of  the  general  property  tax  by  locally 
elected  officers  is  a  failure  as  regards  the  attainment  of  equality 
between  the  various  classes  of  property  in  the  same  jurisdiction. 
Where,  as  in  Michigan,  one  class  of  property  is  assessed  adequately 
by  a  central  board  and  the  average  rate  levied  upon  other  prop- 
erties is  applied  to  the  property  assessed,  there  is  certain  to  be 
injustice  as  regards  the  rate  paid  by  the  property  assessed  at  full 
value. 

2.  The  power  of  review  on  the  part  of  a  state  tax  commission 
without  direct  control  of  the  local  assessor,  either  through  appoint- 
ment or  otherwise,  is  not  adequate  to  secure  uniform  assessments 
throughout  the  state. 

3.  The  separation  of  the  sources  of  state  and  local  revenues  is 
inadequate  to  remove  the  more  glaring  inequalities  in  tax  burden, 
because  these  are  found  in  the  local  jurisdiction. 

4.  The  attempt  to  assess  personal  property, — especially,  money 
and  credits, — has  failed  utterly  and  this  form  of  property  should 
either  be  placed  in  a  separate  class  and  taxed  at  a  special  rate,  or 
else  should  be  abandoned  altogether  and  an  income  tax  substituted 
therefor.    (Applause.) 

CHAIRMAN  SONNTAG  :  Gentlemen,  we  have  heard  a  most  excel- 
lent paper  from  Dr.  Friday,  following  a  most  excellent  paper  by 


TAXATION    IN    INDIANA  109 

Mr.  Purdy,  and  now  we  are  to  hear  another  from  a  gentleman 
from  New  York.  The  next  paper  is  entitled  "Taxation  of  the 
Unearned  Increment,"  by  Joseph  French  Johnson,  Dean  of  the 
School  of  Commerce,  New  York  University. 

TAXATION  OF  THE  UNEARNED  INCREMENT 

DR.  JOHNSON  :  Mr.  Chairman  and  gentlemen  and  ladies — I  have 
a  confession  to  make  in  the  first  place,  that  I  am  in  the  a,  b,  c,  class 
in  taxation,  and  will  not  endeavor  to  find  any  fault  with  Mr.  Purdy. 
If  he  does  not  skin  me  on  the  way  back  to  New  York  I  shall  be 
thankful,  for  when  a  man  talks  extemporaneously  upon  a  subject 
that  he  does  not  know  anything  about  he  is  very  likely  to  say  some 
things  which  he  regrets  having  said,  if  he  recalls  them  the  next  day. 

The  only  excuse  I  have  for  talking  before  a  lot  of  men  who  have 
given  a  good  deal  of  time  to  the  study  of  taxation,  which  I  have 
always  found  a  very  disagreeable  subject,  much  more  disagreeable 
than  my  pet  subject,  "Money  and  Banking," — I  took  up  taxation 
really  because  my  wife  said  once  that  I  w'as  in  danger  of  going 
insane  through  giving  so  much  time  to  the  money  question,  and  I 
looked  around  for  something  worse  and  I  landed  in  the  single  tax 
rank  (Laughter)  ;  and  I  want  to  say  to  you  that  the  single  taxer  is 
abroad  in  the  land.  I  meet  him  frequently  in  New  York,  and  I 
read  of  him  in  Texas,  and  in  the  far  north  of  Canada,  and  I  have  no 
doubt  that  you  have  met  him  right  here  in  your  midst.  He  is  a 
persuasive  gentleman.  I  have  very  many  friends  who  are  single 
taxers,  and  I  love  them  all — I  am  not  sure  that  they  love  me — but 
the  problem  of  the  single  taxer,  as  you  all  know  of  course,  is  to 
make  the  landlord,  the  land  owner,  contribute  a  little  more  towards 
the  support  of  society  than  he  has  been  in  the  habit  of  doing,  or 
than  he  wants  to  do. 

Now  we  have  in  New  York  a  body  of  men  whom  Mr.  Purdy 
alluded  to,  who  are  determined  that  the  land  shall  pay  the  larger 
portion  of  the  taxes,  or  assume  a  larger  part,  of  the  tax  burden.  I 
happen  to  have  with  me  some  of  their  hand  bills,  with  which  they 
are  converting  the  town.  This  one  is  issued  by  "The  New  York 
Congestion  Committee. "  It  proposes  that  the  tax  rate  on  buildings 
in  the  City  of  New  York  shall  be  reduced  gradually  in  the  course 
of  five  years  until  the  rate  on  buildings  shall  be  only  one-half  the 
rate  on  land,  arid  that  they  estimate  at  the  present  rate,  which  is 
$1.83.  They  estimate  that  when  the  thing  is  complete  the  land  will 
be  taxed  at  the  rate  of  $2.25,  and  buildings  at  $1.124.  And  that  is 


110  INDIANA    UNIVERSITY 

adv< calcd  by  this  body  of  jgentlemen  who  have  organized  them- 
selves into  a  society  called  ' '  The  New  York  Congestion  Committee, ' ' 
to  reduce  congestion,  because  if  the  tax  on  buildings  is  reduced, 
naturally  it  will  cost  less  to  put  up  buildings,  and  more  buildings 
will  be  erected,  and  the  buildings  will  have  larger  rooms  and  rent 
will  be  lower,  and  the  cost  of  living  will  go  down  and  everybody 
will  be  happier. 

The  next  pamphlet,  or  handbill,  is  gotten  out  by  some  gentle- 
men who  have .  associated  themselves  together  in  an  organization 
which  they  call  "The  Business  Men's  Association  to  Untax  Indus- 
try." Now  it  is  barbarous,  of  course,  to  tax  industry,  but  in  New 
York  City  the  building  industry  is  the  one  which  is  most  heavily 
taxed.  Some  others  bear  a  very  light  proportion  of  the  taxes.  The 
idea  is  to  untax  industry,,  so  as  to  encourage  and  increase  the 
demand  for  labor  and  cause  a  rise  in  wages. 

Now  here  is  a  handbill,  "Six  Reasons  Why,"  by  the  same 
gentlemen  who  have  associated  themselves  here  in  another  society, 
into  a  society  called  "A  Society  to  Lower  Rents  and  Reduce  Taxes 
on  Homes." 

There  are,  I  presume,  some  others  here,  but  I  will  not  take  the 
time  to  give  you  any  more  of  their  names.  I  haven't  any  doubt 
that  you  will  hear  of  them  in  the  State  of  Indiana.  They  propose 
to  make  the  landowner  pay  a  larger  share,  a  larger  tax,  on  account 
of  the  fact  that  he  is  the  recipient  of  something  which  he  has  not 
earned  and  is  not  entitled  to.  I  haven't  any  doubt  the  agitation 
will  reach  the  City  of  Bloomington  before  you  are  many  years 
older.  I  am  not  going  to  discuss  that  particular  argument  or  prop- 
aganda in  detail.  I  will  simply  put  my  finger  on  the  words  which 
are  made  the  most  of  in  New  York,  namely,  that  the  proposed 
reduction  of  tax  on  buildings  will  encourage  building,  and  so  lower 
rents,  and  hence  lower  part  of  the  tax  which  is  borne  by  the  plain 
people  when  they  pay  rent.  • 

Now  I  don't  know  any  reason  why  I  should  not  pay  tax,  al- 
though I  own  no  land.  I  enjoy  the  privileges  of  New  York  City, 
and  when  I  come  to  Bloomington  even  to  live,  even  though  I  o\vn 
no  land,  I  should  enjoy  the  privileges  of  this  municipality,  and  why 
should  I  not  pay  my  share?  Now  the  share  is  determined  uncon- 
sciously for  the  individual  by  the  tax  that  is  paid  for  the  room,  for 
the  house  that  he  occupies.  In  other  words,  the  poor  man — and 
anybody  that  #Hs  loss  than  three  thousand  dollars  a  year,  accord- 
ing to  Congress,  is  a  poor  man,  and  does  not  have  to  pay  any  income 


TAXATION    IN    INDIANA  111 

tax,  although  he  is  paying  income  tax  without  knowing  it,  as  a 
rule ;  and  of  course  that  is  the  nicest  sort  of  a  tax  to  pay,  one  that 
you  pay  unconsciously — is  paying  it  when  he  pays  rent,  for  if 
you  are  paying  rent  in  New  York  City,  sixty  dollars  a  month,  you 
are  undoubtedly  paying  taxes,  forty,  fifty  or  possibly  sixty  dollars, 
for  some  people  estimate  that  one  month 's  rent  is  about  sufficient  to 
cover  the  building  tax.  Why  should  you  not  pay  it  ?  That  has  not 
been  pointed  out  to  me  by  the  single  taxers. 

"Will  it  reduce  congestion,  this  proposition,  in  New  York  City? 
I  do  not  suppose  that  is  bothering  anybody  in  the  State  of  Indiana. 
I  took  a  walk  around  Indianapolis  today,  but  I  did  not  discover  any 
very  great  signs  of  congestion.  It  seems  to  me  as  if  it  would  pro- 
duce congestion,  that  it  would  induce  the  erection  of  high  build- 
ings ;  give  a  stimulus  to  skyscraping  which  is  now  lacking ;  and  my 
conclusion  seems  to  be  borne  out  by  the  experience  of  Houston, 
Texas,  which  has  adopted  it.  It  has  been  in  practice  there  for  two 
or  three  years,  and  the  mayor  of  Houston  boasts  that  Houston  has 
more  skyscrapers  than  any  other  city  of  the  same  population  in  the 
United  States. 

Now  we  New  Yorkers  do1  not  want  to  live  in  a  town  that  has  a 
lot  of  skyscrapers.  We  have  too  many  of  them.  We  don't  want 
any  more  erected. 

The  stimulus  to  building  undoubtedly  would  be  given,  for  there 
would  be  a  stimulus  to  building  during  the  first  year  or  two,  or 
perhaps  three,  while  the  tax  was  being  put  in  operation,  but  after 
that  period  we  would  have  simply  the  same  normal  increase  in 
population,  the  same  demand  or  increase  in  demand  for  building, 
and  the  same  amount  of  building  as  before  the  change  had  taken 
place. 

Would  it  reduce  speculation  in  land,  which  is  an  argument 
made  in  favor  of  it?  No,  it  would  simply  give  land  a  new  level  of 
value.  I  think  it  would  give  land  a  lower  level  of  value,  because 
the  higher  the  tax  on  land  naturally  the  less  income  to  the  land 
owner,  and  the  lower  the  market  value  of  the  land.  So  we  would 
have  speculation  down  on  a  lower  level;  but  speculation  attaches 
to  anything  where  there  is  a  prospect  of  change  or  chance,  and  you 
would  have  the  same  prospect  of  change  and  chance.  The  unearned 
increment  would  attach  to  land  after  this  building  tax  had  been  lev- 
ied just  as  it  does  now. 

By  the  way,  what  do  we  mean  by  unearned  increment?  I  have 
not  been  able  to  find  that  out  yet.  I  often  have  wondered  whether 


112  INDIANA   UNIVERSITY 

we  earn  our  salaries.  Mine  is  not  very  large,  but  I  know  I  do  not 
work  as  hard  as  some  fellows  who  don't  get  paid  half  as  much  as  1 
do.  And  if  a  man  buys  railroad  stocks  and  they  go  up,  as  they 
have  been  going  up  in  the  last  few  weeks,  is  not  that  unearned 
increment?  Or,  is  he  getting  a  reward  for  the  exercise  of  sound 
judgment  V  Or  if  he  happens  to  have  laid  in  last  summer  an  extra 
large  stock  of  linen  dusters  and  straw  hats,  and  along  comes  this 
open  winter,  the -birds  begin  to  carol  and  the  flowers  come  up  in 
February  and  there  is  great  demand  all  of  a  sudden  for  spring  hats 
and  linen  dusters,  and  he  is  the  only  man  in  town  that  has  got 
them,  he  makes  an  unearned  increment.  You  know  well  enough 
that  men  in  business  are  always  doing  that.  Business  would  not  be 
any  fun  at  all  if  there  was  no  unearned  increment  in  it.  It  is  so  in 
.  all  branches  of  it,  but  the  single  taxer  picks  out  the  poor  fellow  who 
owns  land  as  the  miserable  fellow  who  is  getting  fat  off  the  un- 
earned increment,  and  says  he  ought  to  be  made  an  example  of  as 
an  enemy  of  society. 

Well,  I  was  appointed  by  Mayor  Gaynor  a  member  of  the  Com- 
mission to  hunt  up  some  more  money  than  Mr.  Purdy  could  find  by 
assessing  the  real  estate.  They  called  us  a  Commission  on  New 
Sources  of  Revenue.  It  was  appointed  three  or  four  years  ago.  We 
got  together  and  we  worked  hard.  We  tried  first  the  idea  of  levy- 
ing an  occupation  tax.  That  is  in  vogue  in  Canada,  and  it  is 
curious  how  people  go  to  other  countries  for  things  that  they  think 
are  better  than  the  things  at  home.  I  have  no  doubt  you  people  in 
Indiana  think  we  have  got  something  down  in  New  York  that  would 
be  worth  your  while  if  you  could  only  come  do'wn  there  and  get  to 
understand  it  and  steal  it  from  us.  I  assure  you  we  have  not.  We 
have  got  the  worst  of  any  place  in  the  world,  from  all  points  of 
view.  We  have  however  the  very  best  tax  assessment  system  of  any 
country  in  the  world,  and  the  best — well,  I  will' not  say  anything 
more  about  Mr.  Purdy,  but  if  they  were  all  like  him — 

We  did  not  like  the  idea  of  taxing  business  in  proportion  to  the 
amount  of  space  it  occupied.  That  is  called  a  business  occupation 
tax.  It  would  have  driven  Manhattan  over  into  Hoboken  and 
Jersey  City,  and  we  didn't  care  to  propose  any  legislation  for  the 
benefit  of  our  neighboring  states.  So  we  stopped  discussing  that  as 
being  out  of  the  question. 

Then  \v<-  look  up  a  proposition  which  I  liked,  and  which  I 
fought  for,  but  I  could  not  convince  the  other  members  of  the 
Commission — who  wore  practical  men — 'that  I  wns  right. 


TAXATION    IN    INDIANA  113 

It  was  the  proposition  to  tax  those  rich  fellows  ot  New  York 
who  pay  seven,  eight,  nine  and  ten  thousand,  and  God  knows  how 
many  thousand  dollars  a  year  rent  for  apartments.  Think  of  it! 
I  used  to  live  in  Illinois,  and  I  know  what  I  thought  when  I  first 
heard  of  a  man  who  paid  ten  thousand  dollars  a  year  for  a  few 
rooms  just  to  sleep  and  wash  in.  (Laughter.) 

Now  I  was  just  enough  of  a  country  boy  to  think  that  those 
fellows  ought  to  pay  a  little  extra  tax.  That  is  called  the  habitation 
tax.  We  proposed  that  we  would  levy  a  graduated  habitation  tax, 
beginning  at  two  per  cent,  say,  if  the  rent  was  two  thousand  dol- 
lars a  year,  three  per  cent,  if  the  man  paid  three'  thousand,  four  per 
cent,  if  he  paid  four  thousand  and  five  per  cent,  if  he  paid  five 
thousand  a  year.  That  is,  if  a  man  was  able  to  pay  five  thousand 
dollars  a  year  rent,  or  live  im  a  house  that  could  be  rented  at  five 
thousand  dollars  a  year,  then  he  should  pay  a  habitation  tax  of  five 
per  cent.,  which  would  be  two  hundred  and  fifty  dollars.  I  could 
not  get  that  through  because  they  were  afraid,  the  other  members 
of  the  Commission.  Some  of  them  paid  rent  like  that,  by  the  way. 
(Laughter.)  I  didn't,  and  I  didn't  get  down  low  enough  to  touch 
myself.  (Laughter.)  So,  the  advantage  of  that  would  be  that  it 
would  all  fall  on  the  very  well  to  do,  and  would  lighten  the  burden 
for  us  poor  fellows  down  in  the  lower  part  of  the  town  and  in  the 
slums  and  tenement  houses ;  and  it  would  make  the  general  tax 
rate  lighter  by  calling  for  the  heavier  contribution  from  the  very 
well-to-do. 

I  could  not  get  it  through  because  they  said,  "Well,  the  automo- 
biles are  so  cheap  now,  and  so  handy  and  convenient,  that  these 
rich  fellows  will  not  live  in  town  any  more  at  all ;  they  will  go  up 
into.  Westchester  County  and  have  country  houses,  and  we  will  lose 
everything,  and  we  will  not  even  have  their  trade;  and  we  have 
lost  some  distinguished  citizens  from  New  York  City  already  as  a 
result  of  our  miserable  tax  system."  And  so  I  yielded. 

Well,  we  had  to  come  down  to  something  else.  We  had  got  after 
the  fellow  that  owned  the  land.  Now  I  didn't  like  the  idea  of 
introducing  a  single  tax  in  New  York.  This  idea  of  reducing  the 
tax  on  building,  which  I  have  described  to  you  briefly — I  haven't 
done  the  argument  for  it  justice,  nor  the  argument  against  it  justice 
—I  didn't  like  that.  None  of  us  liked  that,  because  it  didn't 
promise  an  increase  in  the  revenue.  It  did  promise,  probably, 
almost  certainly  in  my  judgment,  a  derangement  or  readjustment 
of  the  values  of  realty,  of  land  values  in  New  York  City,  which 

8—848 


. 

114  INDIANA    UNIVERSITY 

might  cause  a  real  estate  panic  and  a  lot  of  foreclosures  of  mort- 
gages, which  at  the  present  time  it  is  highly  desirable  to  avoid, 
for  reasons  that  I  will  not  attempt  to  describe  to  you. 

But  we  had  an  idea  that  there  was  a  way  of  getting  at  the 
unearned  increment  which  was  being  tried  in  Germany  and  in 
England,  namely,  a  tax  on  the  unearned  increment  itself.  In 
Germany  and  in  England  the  tax  is  levied  on  the  real  estate  or 
the  land  when  it  is  sold,  or  when  it  changes  hands,  and  is  in  propor- 
tion to  the  number  of  years  which  have  elapsed  since  the  last  trans- 
fer, and  in  proportion  also  to  the  amount  of  increase.  It  is  a  double 
ratio  which  has  to  be  taken  into  account  in  the  computation  of  the 
tax,  both  in  Germany  and  in  England. 

That  system  has  been  adopted  over  there  for  the  reason  that 
their  system  is  different  from  ours.  Their  taxes  are  levied  upon 
the  rental  values  of  the  property,  whereas  we  levy  ours  upon  the 
assessed  capitalized  value.  If  the  property  is  rented  and  is  yielding 
no  rental,  the  assessor  determines  what  rental  it  would  yield  if 
the  owner  did  utilize  it,  exploit  it.  That  is  the  case  in  Germany 
and  in  England.  In  other  words,  we  are  much  harder  on  the  land 
owner  here,  harder  on  the  owner  of  unoccupied,  un-utilized,  idle 
and  vacant  land,  than  they  are  in  the  old  world.  Particularly  is 
that  true  in  New  York  City  since  the  effort  has  been  made  to  tax 
all  land  at  its  market  value. 

We  decided  that  that  was  rather  a  German  or  English  way  of 
doing  things,  and  was  too  clumsy  for  New  York  City.  We  could 
not  adopt  that  sort  of  a  tax  because  it  would  yield  an  irregular 
revenue.  We  could  not  figure  on  it  in  the  budget.  So  we  decided 
that  since  we  had  a  tolerably  honest  assessment  for  New  York 
City — I  put  that  word  tolerably  in,  thinking  about  the  old  Judge 
whom  the -darkey  asked  to  recommend  him,  and  the  darkey  had 
his  recommendation  already  written  out  saying  "I  know  him  to 
be  an  honest  man, ' '  and  the  Judge  wrote  in  the  word  ' '  tolerably, ' ' 
making  it  read,  "I  know  him  to  be  a  tolerably  honest  man" 
(Laughter) — so,  having  a  fairly  good  assessment  in  New  York  we 
decided  to  recommend  the  tax  on  the  increase  in  land  values.  That 
it  would  be  practicable  to  have  that  in  that  city.  For  that  matter, 
other  American  cities  defend  a  tax  upon  the  increase  in  land  values, 
which  people  have  a  habit  of  calling  unearned — although  I  am 
not  myself  so  sure  that  a  good  deal  of  it  is  not  earned.  But  the 
1;ix  we  agreed  upon,  to  recommend,  was  a  tax  of  one  per  cent,  on 
the  increase,  if  it  was  not  the  result  of  expenditures  by  the  owner. 

Now,  if  you  owned  a  piece  of  land  that  you  paid  a  hundred 


TAXATION   IN   INDIANA  115 

thousand  dollars  for,  and  a  year  ironi  now  it  is  assessed  at  a  hun- 
dred and  ten  thousand,  and  you  have  spent  three  thousand  dollars 
in  one  way  or  another  in  improving  it,  or  for  special  assessments, 
paving,  etc.,  then  the  increase,  the  unearned  increment,  would  be 
ten  thousand  less  the  three  thousand  dollars,  or  seven  thousand 
dollars;  and  you  would  pay  the  regular  tax  on  one  hundred  and 
ten  thousand  dollars,  say  at  $1.83,  plus  one  per  cent,  on  that  sur- 
plus, that  increase,  that  increment  of  seven  thousand  dollars. 

If  you  had  spent  nothing  whatever  in  that  year  for  the  improve- 
ment of  your  land,  and  it  had  increased  from  one  hundred  thou- 
sand to  one  hundred  and  ten  thousand,  then  your  tax  would  be 
$1.83 — that  being  the  New  York  rate,  or  one  hundred  and  eighty— 
on  the  one  hundred  and  ten  thousand,  plus  one  per  cent,  on  the 
ten  thousand. 

You  see  it  is  a  surtax.  That  sort  of  a  tax,  you  notice,  has 
the  effect  of  making  the  tax  burden  heavier  on  property  which 
is  increasing  in  value  and  lighter  on  property  which  is  stationary 
or  decreasing  in  value. 

Now  all  American  cities  have  property  of  that  sort.  The  way 
our  people  generally  talk  about  land  and  real  estate,  you  would 
think  that  all  land  was  just  going  up,  and  all  you  had  to  do  was 
to  shut  your  eyes  and  buy  some  real  estate  and  get  rich.  Go  off 
and  Rip  Van  Winkle  for  twenty  years  and  come  back  and  have  a 
fortune.  A  number  of  men  have  tried  it,  and  if  you  talk  with 
men  who  have  tried  it  you  will  find  that  about  as  many  have -lost 
in  real  estate  deals  as  have  won. 

So,  in  New  York  City  there  is  a  lot  of  property  which  is  assessed, 
or  it  ought  to  be  assessed,  for  less  today  than  it  was  assessed  three 
or  four  years  ago.  It  is  dead.  Business  and  population  have  been 
carried  away  from  it  by  the  subways;  and  more  property  will  be 
killed  by  the  development  of  new  sections.  That  takes  place  I 
have  no  doubt,  perhaps  less  strikingly,  in  all  our  American  cities. 

Now,  the  advantage  in  this  tax  that  I  am  talking  about,  the 
advantage  that  I  want  to  impress  upon  you,  is  that  it  bears  not 
heavily  upon  those  who  cannot  pay,  who  cannot  carry  the  burden. 
It  bears  with  little  weight  upon  those  who  are  fortunate  in  their 
investments,  and  who  have  been  benefited,  consequently  it  encom- 
passes much  more  thoroughly  the  ideal  aimed  at  than  this  special 
assessment  which  follows  an  improvement. 

Now  when  a  street  railway  is  put  through,  or  a  street  is  paved, 
or  a  subway  is  built,  any  improvement  made  in  the  city  at  public 
expense,  it  is  difficult  to  tell  just  how  much  the  property  is  to 


116       .  INDIANA    UN1VEKSJTY 

be  benefited.  It  is  almost  impossible  to  tell.  You  know  a  certain 
piece  will  be  benefited,  but  you  cannot  grade  it  at  the  time  or  in 
advance;  but  with  this  increment  tax  levied  year  after  year,  care- 
fully, the  benefit  will  be  paid  for  beyond  all  question,  by  the  sur- 
tax. 

Will  this  increment  tax,  if  it  is  adopted,  have  any  serious  effect 
upon  land  values  ?  I  have  not  been  able  to  figure  out  that  it  would 
cause  any  depreciation.  You  see  it  would  not  fall  upon  land  which 
is  stationary.  It  would  have  no  effect  upon  land  which  is  stationary 
in  value,  and  no  effect  upon  land  which  is  declining  in  value,  except 
a  beneficial  effect. 

We  found  that  if  the  land  in  New  York  continued  to  increase 
during  the  next  ten  years  as  it  had  in  the  last  ten  years,  that  is  at 
the  rate  of  one  hundred  and  fifty  millions  a  year — and  that  does 
not  mean  that  each  piece  of  land  had  increased  somewhat,  but  on 
the  average;  some  having  declined,  some  having  advanced,  but  on 
the  average  the  net  increase  was  one  hundred  and  fifty  million 
dollars — that  then  the  increment  tax  would  yield  one  million  and 
a  half  the  first  year,  three  million  the  second  year,  four  and  a  half 
million  the  third;  and  you  figure  on  with  your  arithmetical  ratio 
and  you  will  find  you  are  pretty  soon  up  into  thirty,  forty  and  fifty 
million  dollars,  coming  in  from  that  tax,  and  not  bearing  heavily 
upon  any  man.  Not  taking  a  dollar  from  a  man  who  is  not  in  a 
fortunate  position  and  able  to  pay  the  tax. 

And  as  the  result  of  the  increasing  revenue  from  this  tax- — the 
second  beneficial  result — not  only  will  the  state  have  more  money 
to  spend  but  the  general  tax  rate  may — I  do  not  suppose  it  will- 
but  it  may  be  lowered.  I  say  I  do  not  suppose  it  will  be,  because 
the  tendency  in  the  East,  and  I  have  no  doubt  in  the  West,  is 
for  the  municipality  to  assume  a  wider  and  wider  function,  a  larger 
and  larger  responsibility,  and  do  a  lot  of  things  for  the  people  that 
it  has  not  yet  tried  to  do.  However,  that  is  mere  speculation  with 
regard  to  the  future. 

At  any  rate  the  inflow  of  this  fund  from  unearned  increment, 
from  the  land  which  is  increasing  in  value  without  any  effort  on 
the  part  of  the  owner,  or  not  because  of  his  expenditure,  will 
enable  the  city  to  raise  the  revenue,  the  full  revenue,  by  the  im- 
position of  a  lower  general  tax  rate;  so  that  the  tendency  of  the 
tax  would  be  to  lighten  the  burden  on  those  who  are  least  able  to 
pay  the  tax,  and  make  the  burden  largor  on  those  -who  are  most 
able  to  pay.  (Applause.) 


TAXATION    IN    INDIANA  117 

.DISCUSSION 

CHAIRMAN  SONNTAG:  Gentlemen,  we  have  listened  to  three 
splendid  papers.  The  discussion  that  is  to  follow  will  be  led  by 
Dr.  J.  L.  Leonard,  Professor  of  Political  Economy  in  Wabash 
College. 

DR.  LEONARD:  Mr.  President,  ladies  and  gentlemen — In  talk- 
ing over  the  topic  for  discussion  this  evening  I  am  not  going  to 
follow  any  one  speaker  in  line  and  trace  out  the  strength  and  weak- 
ness of  his  paper,  but  I  am  going  to- take  them  rather  indiscrimi- 
nately, and  try  to  mold  the  whole  of  them  along  one  given  line. 

One  of  the  tendencies  of  the  day  and  the  evening  has  been  to 
take  a  rap  at  the  so-called  assessor,  as  being  the  root  of  all  evil, 
which  reminds  me  of  a  story  which  I  heard  the  .Honorable  Thomas 
L.  Johnson  tell  in  regard  to  assessors:  "that  he  is  usually  a  poor 
man,  engaged  at  a  salary  of  twelve  or  fifteen  hundred  dollars  a 
year,  knows  houses  of  his  own  kind  and  can  assess  them  within  a 
few  dollars  of  their  true  value,  but  when  placed  before  a  magnifi- 
cent painting  in  a  millionaire's  house,  the  chances  are  that  he 
cannot  estimate  its  value  within  fifty  thousand  dollars." 

One  of  the  tendencies  of  the  time  is  to  get  away  from  fixed 
ideas.  We  are  in  a  time'  of  change,  and  we  have  concluded  that 
the  tax  system  of  our  fathers  will  no  longer  suffice  for  ourselves. 
The  general  tendency  for  municipalities  and  cities  is  to  incur  in- 
debtedness without  any  thought  of  methods  of  revenue,  so  when 
it  is  found  that  the  revenue  no  longer  suffices  for  the  need  of  the 
community,  it  becomes  necessary  for  them  to  seek  out  some  new 
sources.  So  the  tendency  has  been,  mostly,  to  seek  out  other 
methods.  Professor  Johnson  has  told  you  of  one  method  that  has 
been  tried  but  not  yet  put  in  use  in  this  country,  a  tax  on  the  un- 
earned increment.  Municipalities  have  been  seeking  fortaxes  upon 
certain  features,  special  license  taxes,  vehicle  taxes  of  Various  kinds, 
or  what  not,  in  the  attempt  to  raise  adequate  revenue  to  carry  out 
their  fiscal  plans.  The  tendency  has  further  shown  itself  in 
change  or  in  the  seeking  out  of  other  lines. 

The  agitation  of  ten  or  fifteen  years  ago  directed  attention  large- 
ly to  railroads.  Their  attempts  at  watering  stock,  and  in  a  good 
many  cases  successfully,  and  their  exceedingly  large  profits  pointed 
them  out  as  being  the  instrument  that  ought  to  be  taxed,  and  in 
some  places  it  was  considered  that  they  ought  to  be  "soaked." 
All  that  you  have  to  do  is  to  refer  to  some  of  the  figures  that  Pro- 
fessor Friday  has  given  you  this  evening;  how  in  the  case  of  Mich- 


118  INDIANA    UNIVERSITY 

igan  they  have  gone  ahead  increasing  the  tax  on  railroads  until 
now  they  are  bearing  a  tax  equal  to  about  thirty  per  cent,  of  their 
income.  It  might  have  been  well  for  Professor  Friday  to  have 
told  us  this  evening  in  how  far  this  attempt  of  Michigan  to  find 
an  equitable  system  has  been  responsible  for  the  bankruptcy  of  a 
few  of  their  railroads,  the  Pere  Marquette  and  other  roads  that 
are  now  in  the  hands  of  receivers. 

The -tendency  to  seek  out  these  special  types  of  corporations 
as  being  legitimate  prey  for  the  tax  gatherer  has  led  us  likewise 
into  the  taxation  of  moneys  and  credits,  or  attempts  to  tax  banks. 
Some  have  been  successful.  Some  have  not. 

Among  other  attempts  to  find  a  new  method  is  the  attempt 
made  in  what  is  called  the  secured  debt  tax,  whereby  a  man  can 
pay  the  tax  on  a  secured  debt  once  for  all,  and  have  it  exempted 
thereafter.  It  seems  a  tax  of  that  kind  is  somewhat  of  a  mistake. 
There  is  a  tendency  for  that  tax  to  be  adopted  in  a  number  of  other 
places,  but  it  seems  to  me  tha«t  to  free  an  instrument  once  for  all 
from  taxation  means  that  you  are  not  going  to  be  able  to  increase  or 
decrease  your  revenues  to  meet  the  conditions  of  your  community. 

There  is  still  further  a  tendency  for  us  to  look  toward  progres- 
sion as  a  method  of  solving  increasing  demands  of  municipality  and 
state  for  further  revenue.  Progression  has  not  been  used  in  this 
country  to  any  appreciable  extent,  not  to  anywhere  near  the  extent 
that  it  has  been  used  abroad.  It  may  be  that  it  will  never  come  to 
this  country;  it  may  be  that  it  will.  However,  there  is  consider- 
able agitation  along  these  lines,  and  the  possibility  is  that  the  ten- 
dency of  the  time  is  to  have  a  tax  of  that  nature. 

Our  tendency,  in  fact,  is  to  look  to  Europe  to  guide  us  to  a 
large  extent  in  attempting  to  find  other  sources.  The  income  tax 
is  an  illustration  of  that  tendency.  The  inheritance  tax  is  an 
illustration  of  that  tendency.  The  unearned  increment  tax  is  an 
illustration  of  that  tendency.  Professor  Johnson  has  been  telling 
you  of  the  advantages  and  disadvantages  of  an  unearned  increment 
tax,  and  he  himself  seems  to  be  inclined  to  think  that  it  is  a  pretty 
good  thing,  and  that  it  is  rather  just. 

1  'Increase  the  tax  on  land.  Give  us  more  revenue,"  is  the  cry. 
Will  that  work  justice  or  injustice?  The  possibilities  are  that  in 
quite  a  few  cases  it  will  be  an  injustice,  for  the  fact  that  land 
increases  in  value  does  not  mean  that  the  man  who  owns  that  land 
is  going  to  be  one  whit  more  able  to  pay  any  additional  levies  or 
assessments  upon  it.  Take  the  average  man  owning  and  holding 


TAXATION    IN    INDIANA  119 

property  on  the  edge  of  a  town.  The  valuation  of  that  property 
is  not  its  present  physical  value  on  its  terms  of  present  income, 
but  the  valuation  of  that  particular  piece  of  land  is  based  on  the 
anticipations  of  the  future ;  so'  that  any  attempt  to  levy  an  assess- 
ment upon  that  land  for  the  purpose  of  finding  its  increment  is 
liable  to  be  very  misleading.  For  on  the  same  basis,  under  the 
same  conditions,  the  tendency  may  be  for  the  town  to  suddenly 
swing  over  in  another  direction,  and  instead  of  growing  south, 
grow  west,  and  the  man  who  had  anticipations  in  the  south  sees 
them  fall  flat.  He  has  been  holding  it,  and  it  has  been  rising  in 
value,  on  the  hope  and  anticipation  of  a  future  return.  When  the 
time  comes  when  he  has  expected  to  realize,  he  finds  it  is  absolutely 
impossible  to  secure  his  price.  Under  such  conditions  as  that  an 
unearned  increment  tax  cannot  work. 

Professor  Johnson  has  stated  that  the  tax  can  be  easily  esti- 
mated. It  is  hard  to  say  whether  it  can  or  cannot.  When  the 
land  is  to  be  found  in  small  parcels,  and  the  real  estate  tradings 
and  activities  are  quite  frequent,  there  is  perhaps  but  little  diffi- 
culty in  estimating  very  closely  the  probable  changes  in  value ;  but 
when  the-  movement  of  real  estate  is  slow,  then  there  comes  diffi- 
culty, and  the  attempt  might  meet  with  only  average  success. 
You  might  do  as  much  injustice  as  justice. 

The  tendency  has  been  to  state  that  the  levying  of  a  tax  of 
this  kind  will  tend  to  reduce  other  taxes.  Professor  Johnson 
stated  that  that  might  or  might  not  be  true.  I  doubt  if  it  can  ever 
be  true,  for  the  general  tendency  of  the  expenses  of  government  of 
municipalities  and  states  has  been  progressive,  while  the  increases 
of  property  have  been  proportional ;  and  again  I  refer  you  to  Pro- 
fessor Friday's  paper  on  the  statistics  where  he  covered  the  in- 
creased valuation  of  properties  in  his  state  and  the  percentage  in- 
crease of  the  tax  rate. 

Again  it  is  difficult  to  say  who,  under  the  unearned  increment 
basis,  is  responsible  for  that  increase  of  land  values.  Under  the 
idea  of  the  unearned  increment,  society  is  supposed  to  be  respon- 
sible for  the  increase.  Society  is  supposed  to  be  the  people  who 
move  in.  Now  sometimes  that  movement  is  stimulated.  Then 
we.  can  see  that  no  other  person  can  justly  claim  the  gain  from 
that  land  and  its  increased  value  than  the  speculator  who  induces 
people  to  come  in  and  take  it  up.  The  man  who  has  been  telling 
us  about  southwestern  Canada  and  western  Canada,  who  has  been 
telling  of  the  abundant  opportunity  the  man  has  there  to  acquire 


120  INDIANA    UNIVERSITY 

a  homestead  and  to  earn  a  good  living,  has  been  a  speculator  induc- 
ing people  to  come  there ;  and  it  is  altogether  due  to  his  own  efforts 
and  the  efforts  of  that  class  of  people  that  lands  up  there  have  been 
given  their  fictitious  value. 

As  it  happens  in  the  case  of  those  western  cities,  we  likewise  see 
the  other  tendency  which  is  perhaps  somewhat  the  single  tax  and 
somewhat  the  unearned  increment  idea — that  is  tax  the  land  and 
remove  the  tax  on  buildings. 

As  the  expenses  of  communities  increase  how  is  it  that  they  are 
going  to  secure  additional  revenue  to  operate  ?  The  land  has  per- 
haps increased  up  to  a  stationary  point.  The  land  owner  cannot 
afford  to  pay  any  further  tax,  and  he  is  the  man  who  is  going  to 
most  seriously  object  to  the  proposition  that  this  man  who  owns  a 
building  shall  go  absolutely  scot  free  of  any  payments  whatever. 

No  doubt  this  method  of  exempting  buildings  and  taxing  land 
is  very  good  froni  an  advertising  standpoint,  and  that  is  all  Hous- 
ton is  doing  it  for.  Pittsburgh  and  Scranton  are  using  it  as  an 
experiment,  and  it  will  be  a  mightly  risky  one ;  I  can  almost  guar- 
antee failure  for  those  experiments  on  the  basis  of  human  nature 
alone.  Men  are  not  going  to  stand  by  and  see  somebody  else  free 
from  the  taxation  to  which  they  are  subject. 

Among  other  tendencies  in  our  general  system  o'f  taxation  we 
see  the  attempts  to  centralize.  The  attempts  to  centalize  may  be 
well  directed  and  they  may  be  misdirected.  For  misdirected  efforts 
we  have  Professor  Friday's  account  of  the  attempts  that  the  Michi- 
gan Commission  has  made,  the  attempt  it  has  made  to  make  an 
equitable  levy  upon  all  classes  or  types.  There  is  no  doubt  about  it 
that  we  need  more  centralized  power  in  taxing  authority,  and  wider 
power;  and  there  is  no  doubt  that  the  tendency  is  and  the  feeling 
is  that  there  must  be  a  complete  and  thorough  revision  of  all  the 
laws  on  the  subject  of  taxation.  I  thank  you.  (Applause.) 

[The  Committee  on  Organization,  through  Mr.  E.  I.  Lewis,  then 
presented  the  following  report,  which  was  adopted:] 

REPORT  OP  THE  COMMITTEE  ON  ORGANIZATION 

Ymir  Committee  on  the  Organization  of  a  State  Tax  Associa- 
tion makes  the  following  recommendations: 

First,  That  a  State  Tax  Association  be  organized  for  the  inves- 
tigation of  taxation  questions.. 

Second,  That  the  co-operation  of  the  Extension  Division  of  the 
Indiana  University  and  the  State  Board  of  Tax  Commissioners  be 


TAXATION    IN    INDIANA  121 

invited  in  the  study  of  taxation  in  Indiana  and  in  the  dissemination 
of  correct  information  on  the  subject. 

Third,  That  the  Association  be  called  the  Indiana  Tax  Asso- 
ciation. 

Fourth,  That  the  officers  of  the  Association  for  the  ensuing 
year  be  a  President,  three  Vice-Presidents,  Secretary  and  Treas- 
urer, who  shall  constitute  the  Executive  Committee. 

Fifth,  That  the  Executive  Committee  shall  formulate  a  con- 
stitution and  necessary  by-laws,  which  shall  be  the  constitution 
and  by-laws  of  this  Association  until  the  close  of  the  next  conven- 
tion. The  Executive  Committee  shall  fix  the  basis  of  membership 
and  the  basis  of  representation  in  the  next  convention,  for  voting 
purposes. 

Sixth,  That  the  cooperation  of  the  Extension  Division  of  In- 
diana University  and  of  the  State  Board  of  Tax  Commissioners 
be  invited  in  the  call  of  the  next  convention. 

[Following  the  adoption  of  the  above  report,  a  nominating 
committee  was  appointed,  consisting  of  Mr.  Ernest  I.  Lewis,  chair- 
man, Mr.  Charles  Remy,  and  Mr.  Earl  Mushlitz,  all  of  Indianapolis, 
to  report  at  the  session  next  morning.] 

FRIDAY,  FEBRUARY  6,  MORNING  SESSION 

The  conference  met  at  9:30  a.  m.  pursuant  to  adjournment, 
Mr.  Charles  F.  Remy,  of  Indianapolis,  presiding. 

CHAIRMAN  REMY:  Gentlemen,  if  we  are  to  get  through  witli 
the  program  for  this  forenoon  at  twelve  o'clock,  as  we  are  asked 
to  do,  there  is  no  time  for  speech  making  on  the  part  of  the  presid- 
ing officer  this  morning,  and  we  will  proceed  promptly  to  the 
order  of  business.  The  first  thing  in  order  is  an  address  by  Dr. 
Thomas  S.  Adams,  member  of  the  Wisconsin  Tax  Commission,  on 
the  subject  of  "The  Appointment  and  Supervision  of  Local  As- 
sessors. ' ' 

THE  APPOINTMENT  AND  SUPERVISION  OP  LOCAL  ASSESSORS 

DR.  ADAMS:  Mr.  Chairman  and  gentlemen — When  I  think 
about  the  question  of  tax  reform  I  am  always  tempted  to  para- 
phrase a  familiar  aphorism  of  the  last  presidential  campaign  and 
say  that  the  American  people,  before  this  difficult  problem  of  tax 
reform,  resemble  nothing  so  much  as  a  large  flabby  personality 


122  INDIANA    UNIVERSITY 

surrounded  by  interests  which  know  exactly  what  they  want.  The 
problem  is  not  so  much  obscure,  and  its  solution  does  not  call  so 
much  for.  knowledge  of  what  ought  to  be  done,  as  it  does  for  an 
exercise  of  the  will  power  and  energy  to  get  what  we  know  we 
ought  to  have.  The  trouble  is  not  ignorance.  We  know  well 
enough  what  we  want. 

We  know,  first,  (what  is  secondary  in  importance)  that  there 
are  a  certain  number  of  laws  that  need  to  be  repealed.  We  know 
that  part  of  our  trouble  arises  from  solemn  legislative  attempts 
to  do  things  which  cannot  be  done  and  ought  not  to  be  done.  We 
need  to  do  away  with  some  old  laws  and  enact  a  few  new  ones,  in 
most  places.  And  yet  the  legislative  aspect  is  of  secondary  im- 
portance. The  matter  of  primary  importance  is  the  improvement 
of  assessment  work. 

In  the  State  of  Wisconsin  we  will  collect  this  year  taxes  ap- 
proximating fifty  million  dollars.  Of  that  sum  something  be- 
tween forty-one  and  forty-two  million  dollars  represents  property 
taxes  collected  on  the  basis  of  assessments  made  by  the  much  abused 
and  much  maligned  local  assessor.  Compared  with  anything  else 
in  the  system  of  state  and  local  finance  this  man,  the  local  assess- 
or, and  his  work,  loom  up  as 'of  surpassing  importance.  Tax  com- 
missioners go  about  and  lecture,  and  county  supervisors  advise 
and  revise,  deliberative  assemblies  meet  and  discuss,  but  when  all 
is  done,  the  man  of  real  importance,  the  pivot,  the  key  of  the  whole 
performance,  is  the  local  assessor.  Everything  comes  back  to  his 
work. 

And  I  wish  to  digress  enough  to  point  out  that  the  work  which 
these  men  do  is  difficult  work.  We  have  got  into  the  habit,  par- 
ticularly with  respect  to  real  estate,  of  speaking  about  this  work 
as  if  it  could  be  done  by  any  well  disposed  gentleman  who  will 
display  a  reasonable  amount  of  care,  thought  and  industry.  It  is 
true  that  a  reasonable  amount  of  care  and  thought  and  industry 
would  improve  the  situation  in  most  jurisdictions  at  the  present 
time,  but  that  is  not  all  that  is  necessary. 

The  truth  of  this  matter  is  that  the  work  of  assessment,  or  the 
work  of  the  ordinary  real  estate  assessor,  is  difficult  work.  It  is 
work  that  requires  a  bona  fide  expert.  You  cannot  play  with  it. 
I  am  reminded  of  that  every  day.  Practically  every  day  in  my 
office  at  the  present  time  I  am  called  upon  to  work  over  both  prop- 
erty assessments  and  income  assessments,  and  as  a  matter  of  fact 
I  would  much  rather  tackle  an  income  assessment  than  I  would 
to  take  up  the  question  of  the  property  valuation  of  city  real 


TAXATION    IN    INDIANA  123 

estate.  In  the  one  task  you  have  some  entries  on  books.  You  have 
got  a  course  of  business.  You  have  got  specific  data  to  go  by; 
and  while  the  determination  of  income,  like  the  determination  of 
the  value  of  a  piece  of  property,  involves  a  certain  amount  of 
estimate,  the  estimate  moves  within  narrower  limits  in  the  income 
assessment  than  it  does  in  the  property  assessment. 

What  I  have  said  is  something  in  the  nature  of  a  digression. 
The  point  I  make  is  that  assessment  work  is  difficult  work,  that 
it  requires  training  and  thought,  and  particularly  experience.  You 
cannot  expect  an  unprepared,  untrained  man  to  do  this.  I  do  not 
care  how  well  informed  a  man  may  be,  he  cannot  jump  in  and 
assess  a  city  or  a  village  or  even  an  ordinary  township  without 
preparation,  and  without  something  in  the  nature  of  a  system,  and 
particularly  without  common  sense  and  backbone. 

"We  know  what  we  want.  First  of  all  we  must  select  men  with 
common  sense,  industry,  and  judgment.  Then  when  we  get  such 
men  we  must  keep  them  at  their  work  long  enough  to  acquire 
experience,  so  that  they  may  really  get  to  know  their  district,  to 
know  values,  and  to  know  the  law.  It  will  .take  a  year  for  the 
ordinary  assessor  to  master  the  law  of  taxation,  to  say  nothing 
about  the  intricacies  of  appraisement. 

Then  after  we  get  a  good  man  and  he  acquires  the  requisite 
experience,  we  must  pay  him  enough  to  keep  him  from  resigning. 
A  real  assessor  ought  to  become  an  exceedingly  valuable  person  in 
a  short  time.  His  services  ought  to  be  greatly  in  demand.  If  you 
want  to  keep  him  you  must  pay  him.  And  finally,  you  have  got 
to  protect  him  from  the  class  of  people  who  make  the  ordinary 
assessor's  life  a  burden.  You  have  got  to  protect  him  against  the 
interested  business  men.  You  have  got  to  protect  him  against 
political  influences,  and  against  the  disgruntled  taxpayer.  You 
have  got  to  protect  him  against  the  little  waves  of  irritation  that 
inevitably  arise  everywhere  when  an  honest  man  performs  honestly 
and  efficiently  this  more  or  less  disagreeable  work  of  assessment. 
The  tax  assessor  cannot,  in  the  nature  of  things,  be  a  popular  idol, 
and  obviously,  he  must  be  protected. 

If  this  analysis  of  this  situation  is  correct,  I  personally  think 
we  ought  to  select  assessors  by  civil  service  methods.  I  do  not 
mean  academic,  theoretical,  bookish  civil  service  methods.  I  mean 
real  civil  service  methods.  I  mean  a  civil  service  organization  that 
would  select  men  by  the  same  standard  which  the  men  who  sit  be- 
fore me  employ  to  select  a  subordinate. 


124  INDIANA    UNIVERSITY 

According  to  my  experience,  if  you  have  a  civil  service  com- 
mission which  understands  that  we  need  some  examination  besides 
a  mere  paper  examination  of  the  scholastic  kind,  it  can  do  infinitely 
better  work  in  selecting  proper  candidates  than  any  individual 
officer,  because  it  has  means  of  getting  into  touch  with  a  much 
wider  range  of  talent.  It  can  sweep  a  whole  state,  or  the  whole 
United  States,  in  its  search  for  ability;  whereas  the  ordinary  in- 
dividual is  more  or  less  limited  to  the  people  with  whom  he  may 
happen  to  come  in  contact.  I  am  a  great  believer  in  civil  service 
methods  because  I  have  tried  them,  because  I  know  that  they  in- 
terest a  wider  group  of  candidates  and  induce  ambitious  men, 
particularly  young  men,  to  aspire  for  these  positions.  All  the 
eligible  men  that  I  personally  know  can  be  drawn  into  competition 
with  ten  times  that  number  which  a  good  civil  service  commission 
will  interest  in  the  appointments.  Civil  service  at  its  best  is  a 
means  not  only  of  eliminating  politics  and  personal  favoritism,  but 
of  multiplying  indefinitely  the  available  material  or  talent. 

The  income  assessors  in  Wisconsin  were  selected  by  civil  service 
methods,  and  all  three  of  the  state  tax  commissioners  are  agreed 
that  we  got  better  men  than  could  have  been  secured  by  other 
methods.  The  tax  commission  selected  the. assessor  from  the  first 
three  Barnes  presented  by  the  civil  service  commission  after  exam- 
ination. But  this  examination  was  a  rational,  business-like  one. 

How  long  assessors  should  hold  office  and  what  salary  they 
should  receive,  are  questions  that  can  be  decided  at  particular 
places  only  by  reference  to  local  conditions. 

We  have,  if  I  may  go  back  home  for  another  illustration,  we 
have  forty-one  supervisors  of  assessment  in  the  state  of  Wisconsin, 
and  the  average  salary  is  twelve  hundred  dollars  a  year.  If  you 
will  ensure  a  man  a  fairly  long  tenure  of  office,  and  make  him 
confident  that  he  is  going  to  be  protected  against  the  petty  assaults 
that  make  the  local  assessor's  life  miserable,  and  assure  him  that 
the  only  standard  by  which  he  will  be  judged  will  be  efficient 
work,  you  can  get  remarkably  good  men  for  moderate  salaries,  par- 
ticularly in  the  smaller  cities  and  rural  districts.  To  direct  and 
train  these  assessors  properly  and  to  assure  them  that  they  will 
}»<•  removed  for  inefficiency  only,  there  is  probably  needed  in  addi- 
tion, a  central  commission  or  board  properly  intent  upon  taxation 
rather  than  politics. 

I  think  that  most  of  you  will  agree  with  me  that  this  is  a  correct 
<>i'  what  we  need,  what  the  situation  demands — barring 


TAXATION    IN    INDIANA  125 

possibly  my  eulogy  of  civil  service  requirements.  What  is  it  then 
that  prevents  our  getting  and  keeping  efficient  assessors? 

The  principal  reason  I  believe  is  democracy's  indifference  to 
efficiency.  The  average  community  of  American  people  care  very 
little  about  public  efficiency.  If  any  one  of  you  has  ever  held 
public  office,  you  know  that  the  ordinary  citizen  cares  very  little 
about  efficiency.  The  way  to  hold  a  job,  if  you  are  anxious  to  hold 
it,  is  to  loaf,  make  just  as  little  trouble  as  possible,  appear  with  the 
glad  hand  on  the  proper  occasions,  lie  low  like  "Br'er  Rabbit"  and 
be  agreeable. 

And  democracy,  for  the  kind  of  work  of  which  we  are  speaking, 
will  not  ordinarily  pay  sufficient  salaries.  The  local  assessor  in  the 
State  of  Wisconsin  is  the  worst  paid  official  in  the  state.  Local 
treasurers,  who  do  little  but  sit  in  their  desk  chairs  and  take  what 
is  brought  to  them,  receive  more  compensation  than  the  assessors, 
whose  work  is  not  only  hard  but  very  disagreeable.  The  time  has 
been  in  Wisconsin  when  it  was  not  uncommon — I  do  not  mean  to 
say  it  was  the  general  practice — but  it  was  not  uncommon  prac- 
tice to  offer  the  job  of  assessor  to  the  lowest  bidder,  and  give 
it  to  the  man  who  would  undertake  to  perform  the  work  for  the 
smallest  compensation.  We  received  just  the  kind  of  service  that 
the  compensation  warranted. 

It  is  the  most  disheartening,  the  most  disagreeable  work  that 
I  know  of,  to  try  to  interest  the  American  electorate  in  this  ques- 
tion of  efficiency,  of  getting  things  done  in  a  businesslike  way,  on 
time,  in  reasonable  amount,  at  reasonable  cost.  You  all  know  that. 
The  situation  is  further  complicated  by  the  fact  that  in  every  com- 
munity there  are  important  men  who  resent  and  oppose  good 
assessment  work.  Unconsciously  for  the  most  part — because  we 
have  few  conscious  grafters  anywhere — people  who  do  not  want  effi- 
cient work  done  see  to  it  that  the  efficient  man  is  not  re-elected. 
There  is  a  direct  relation  between  efficiency  and  the  probability  ol 
losing  office.  It  does  not  always  exist.  If  you  have  looked  into 
this  matter  you  will  be  surprised  at  the  number  of  efficient  assessors 
who,  while  they  depend  upon  the  local  electorate,  manage  neverthe- 
less to  get  office  and  keep  it.  But  the  general  rule  is  the  other 
way.  The  man  who  makes  an  honest  assessment,  particularly  the 
man  who  makes  a  full  value  assessment — and  it  is  difficult  to  get 
a  good  assessment  unless  it  is  made  at  full  value — that  man  finds 
it  particularly  difficult  to  be  re-elected,  or  if  he  is  appointed  by 
local  officials,  to  be  re-appointed. 


126  INDIANA    UNIVERSITY 

Mr.  Link,  who  is  sitting  at  my  left  here,  analyzed  this  situation 
very  clearly  in  a  paper  which  he  read  at  the  last  meeting  of  the 
National  Tax  Association.  In  discussing  the  method  of  selecting 
assessors  he  said: 

"Here  the  doctrine  of  home  rule  and  the  question  of  efficiency 
;iiid  equality  in  taxation  meet  in  irreconcilable  conflict.  People 
do  not  like  to  be  taxed,  and  if  they  must  be  taxed,  they  would  rather 
be  taxed  by  their  neighbors  and  friends.  They  object  to  being 
taxed  by  foreigners  or  by  officers  in  whose  election  they  have  had  no 
voice,  or  with  whom  they  have  no  influence.  And  yet,  under  the 
general  property  tax  system,  no  assessment  ever  has  or  ever  will 
approproximate  equality  without  adequate  outside  supervision. 
There  are  two  reasons  for  this:  First,  it  is  too  much  to  humanly 
expect  local  assessors  to  be  indifferent  to  the  selfish  demands  of 
their  constituents,  and  particularly  those  of  their  constituents 
who  are  of  political  importance  to  them.  Secondly,  the  question  of 
efficiency  is  very  seldom  the  determining  factor  in  the  election  of 
an  assessor.  Thus,  somehow,  there  must  be  devised  a  remedy  for 
this  situation ;  one  which  will  to  a  reasonable  extent  offset  partiality 
and  inefficiency,  and  at  the  same  time  not  openly  do  violence  to  the 
cherished  tradition  of  a  free  people  that  they  have  the  right  to 
regulate  their  domestic  affairs  as  they  see  fit." 

That  is  a  very  wise  and  adequate  summary  of  the  difficult  prob- 
lem which  we  have  to  solve,  and  having  called  attention  to  what 
seem  to  me  the  necessary  conditions  of  its  solution,  I  want  to  speak 
briefly  on  the  practical  means  of  realizing  these  conditions.  Because 
I  believe  there  is  a  real  possibility  of  answering  this  riddle,  or 
reconciling  local  democracy  with  centralization  of  the  proper  kind. 

The  key  to  the  situation,  I  believe,  lies  in  the  American's  love 
of  fair  play.  We  talk  about  the  American  being  an  efficient  man, 
but  so  far  as  public  service  is  concerned  he  cares  little  whether 
it  is  efficient  or  not.  He  is  not  interested  in  it.  He  will  not  take 
an  hour's  time,  or  spend  ten  cents,  in  the  average  case,  to  find  out 
whether  a  given  official  is  efficient,  or  even  trying  to  be  efficient. 
This  is  true.  Any  man  who  has  studied  the  American  electorate 
knows  it  is  true.  But  he  does  love  fair  play,  and  I  believe  it  may 
be  possible  to  play  upon  his  instinct  for  fair  play  in  a  way  that 
will  solve  this  problem.  Let  me  illustrate  by  referring  again  to 
Wisconsin  where  we  have  stumbled  on  rather  than  developed  a 
system  which  in  the  last  two  years  has  gone  very  far  to  settle  sonic 
of  the  most  difficult  of  these  problems. 


TAXATION   IN   INDIANA  127 

/ 

The  keynote  of  that  system  is  our  reassessment  statute.  We 
have  as  you  know  a  state  tax  commission.  The  people  of  Wiscon- 
sin, like  the  people  of  Indiana,  would  not  permit  the  tax  commis- 
-sion  to  appoint  the  assessors  who  actually  make  the  assessments  in 
the  local  districts.  But  note  this  fact.  In  most  American  common- 
wealths today,  despite  the  fact  that  glaring  injustice  is  involved  in 
the  ordinary  assessment,  there  is  no  real  remedy.  There  is  no  real 
remedy  because  the  courts  require  an  amount  and  kind  of  proof 
that  is  beyond  the  power  of  the  average  man  to  secure.  Unlawful 
and  discriminatory  assessments  are  the  rule  rather  than  the  excep- 
tion, and  yet  the  tests  set  up  by  the  courts  are  so  difficult  to  meet, 
that  these  assessments  are  not  challenged  and  upset  as  they 
should  be.  Theoretically  there  is  a  remedy,  practically  there  is 
none. 

Under  these  circumstances,  the  people  of  Wisconsin  reasoned 
in  this  way.  "We  have  a  tax  commission,"  they  said,  "the  com- 
mission knows  the  law,  and  is  not  trammeled  by  the  difficult  rules 
of  evidence  and  procedure  which  obtain  in  the  courts.  Why  not 
make  this  tax  commission  a  sort  of  informal  court,  a  peoples  '  court, 
in  which  a  case  may  be  started  by  a  mere  complaint  on  a  postal 
card,  and  where  —  if  a  prima  facie  case  be  made  out  by  common 
sense  methods  —  a  further  examination  will  be  instituted  by  the 
commission  itself,  and  the  assessment  corrected  if  it  is  found  to 
be  unlawful  and  discriminative." 

Accordingly  the  people  of  Wisconsin  passed  a  statute  which 
permits  anybody  to  make  a  complaint  to  the  tax  commission  in  the 
most  informal  way,  and  have  that  complaint  investigated;  and  if 
it  is  determined,  as  I  said  before,  that  the  assessment  in  question 
is  an  unlawful  assessment,  and  that  sound  public  policy  would  be 
subserved  by  making  a  reassessment,  we  go  in  and  make  a  reassess- 
ment. The  state  is  dotted  with  districts  which  have  been  reassessed 
by  appointees  of  the  tax  commission.  The  instinct  for  fair  play 
calls  for  a  remedy,  where  the  mere  plea  for  efficiency  and  observ- 
ance of  the  law  would  fall  on  deaf  ears. 

In  many  districts  we  have  found  assessments  bad  when  nobody 
meant  them  to  be  bad,  and  conditions  are  frequently  righted  in 
such  districts  by  a  compromise.  We  say  to  the  officials:  "Your 
assessments  here  are  unlawful.  But  reassessments  are  expensive. 
It  you  will  promise  to  make  the  next  assessment  carefully  under 
our  supervision,  and  do  it  right,  that  will  be^sati^faetc^yrM.  A 
number  of  cases  have  been  settled  in  this  ^ay.  The  lUext  assess- 
ment made  after  such  an  arrangement  has  been  reached;  isi  Usually 


128  INDIANA     t'NI\  KKS1TY 

a  good  one.  We  secure  either  in  this  way  or  by  actual  reassess- 
ment a  new  standard  in  the  section  of  country  involved.  The 
work  of  neighboring  assessors  is  thrown  into  glaring  contrast, 
and  the  people  of  a  whole  section  get  an  object  lesson  which  makes 
further  reassessment  unnecessary.  For  a  short  time  after  one  of 
these  reassessments  there  is  frequently  much  hard  feeling,  but  or- 
dinarily the  people  come  to  feel,  I  think,  that  it  has  been  a  good 
thing;  and  they  .would  not  voluntarily  go  back  to  the  old  conditions. 

All  this  reassessment  work,  it  is  important  to  note,  is  done  under 
a  statute  which  has  been  declared  by  our  supreme  court  to  be  in 
complete  harmony  with  a  constitution  that  is  rigidly  insistent  upon 
the  right  of  each  locality  to  elect  its  own  officers,  when  not  specific- 
ally provided  for  otherwise  in  the  constitution.  The  state  tax  com- 
mission does  not  appoint  local  assessors.  It  simply  revises  the  work 
of  local  assessors  when,  that  work  is  found  to  be  defective  and  un- 
lawful. The  expense  of  the  reassessment  is  charged  to  the  district ; 
and  this  power  of  reassessment  is  all  the  weapon  or  machinery  that 
is  necessary  in  the  long  run  to  secure  substantially  equitable  assess- 
ments, provided  you  have  the  tax  commission  and  the  supervisors 
of  assessment  noted  hereafter. 

For  generations  in  Wisconsin  intangible  personalty  and  particu- 
larly securities  had  practically  escaped  taxation.  Earnest  efforts 
were  made  to  get  them  on  the  assessment  roll ;  but  after  declaiming 
and  exhorting  and  belaboring  assessors  with  advice  and  exhortation 
for  years,  the  tax  commission  made  an  investigation  and  found 
that  securities  were  actually  taxed  at  just  3.31  per  cent  of  Ihcir 
full  value.  What  I  mean  is  that  over  ninety-six  per  cent  of  the 
taxable  securities  were  escaping  taxation.  In  a  few  districts  small 
amounts  of  credits  and  securities  were  placed  on  the  tax  roll,  but 
in  general  the  assessment  was  shamefully  irregular,  and  haphazard. 
In  due  time  an  income  ta,x  replaced  the  property  tax  on  securities 
and  some  other  forms  of  personal  property;  and  with  the  income 
tax  we  secured  the  appointment  of  forty-one  supervisors  of  assess- 
ment selected  for  reasonably  long  terms  under  civil  service  condi- 
tions. I  have  fallen  into  the  habit  of  calling  these  supervisors 
*  *  protected  assessors. ' ' 

Here  is  another  psychological  element  to  which  I  want  to  call 
attention.  We  got  these  "protected  assessors"  in  Wisconsin  sim- 
ply because  we  put  up  to  the  people  something  they  wanted  which 
involved  the  protected  assessor  as  a  necessary  prerequisite.  The 
people  of  Wisconsin  wanted  an  income  tax.  It  was  demonstrated 


TAXATION    IN    INDIANA  129 

to  them  that  every  state  income  tax  in  this  country  had  been  a 
flat  failure  because  it  was  administered  by  local  officials;  and  to 
get  the  income  tax  in  which  they  were  interested,  they  took  with 
it  the  state  appointed,  civil-service  selected,  amply-protected  income 
assessor  in  whom  they  were  not  interested.  Everybody  saw  that  it 
would  be  futile  to  pass  an  income  tax  and  leave  it  to  be  admin- 
istered by  the  old  type  of  assessors.  So  that  question  was  never 
discussed.  It  was  taken  for  granted. 

Now  the  point  I  wish  to  make  is  this :  the  protected  assessor  is 
an  indispensable  part  of  the  tax  system.  There  can  be  no  doubt 
about  the  truth  of  this.  If  it  is  true,  the  American  people  can  be 
made  to  see  the  truth  in  one  way  or  another.  "We  may  have  to  wait, 
but  after  a  time  the  opportunity  will  occur.  In  Wisconsin  we 
provided  that  the  income  assessors  should  serve  as  supervisors  of 
assessment,  and  it  was  in  this  way  that  we  got  a  group  of  supervis- 
ors appointed  by  the  state  tax  commission,  under  civil  service  re- 
quirements. These  assessors  or  supervisors  were  selected  on  merit. 
There  are  among  them  democrats,  republicans,  prohibitionists,  sin- 
gle-taxers  and  socialists.  In  the  last  two  years  they  have  accom- 
plished a  fundamental  reform  in  the  administration  of  the  tax 
laws. 

In  the  first  place,  we  have  steadily  improved  the  quality  of  the 
assessments,  so  that  this  year  there  are  many  districts  in  the  state  of 
Wisconsin  where  one  finds  a  good  honest  assessment  at  full  value. 
Property  is  assessed  this  year  at  81  per  cent  of  the  full  value,  and  as 
we  have  to  ascertain  the  ratio  of  assessed  to  true  value  with  great 
care — owing  to  the  form  of  our  railroad  taxes — this  figure  may  be 
regarded  as  trustworthy.  Many  districts  are  assessed  at  full  value, 
and  the  state  as  a  whole  at  eight-tenths  of  full  value.  Those  of 
you  who  know  how  assessment  at  full  value  tends  to  produce  equi- 
table assessments,  how  the  effort  to  reach  the  legal  standard  tends 
to  equalize  valuations,  will  recognize  that  this  is  work  well  worth 
doing. 

Our  method  of  working  is  about  as  follows:  the  supervisors  of 
assessment  advise  and  confer  with  the  local  assessors  just  as  your 
county  supervisors  do.  Mere  advice,  however,  has  meant  very 
little  in  the  past.  In  addition  our  supervisors  may  now  say  to  any 
assessor  who  is  not  obeying  the  law :  "I  cannot  make  you  obey 
the  law  directly,  but  if  you  continue  to  neglect  the  law  I  will  be 
compelled  to  bring  an  application  for  reassessment  and  if  on  ex- 
amination your  work  is  not  found  to  be  in  substantial  compliance 

9—848 


130  INDIANA    UNIVERSITY 

with  law,  a  reassessment  will  have  to  be  ordered  at  the  expense  of 
your  district."  In  a  particularly  atrocious  case  he  may  threaten  to 
have  the  assessor  removed  and  subjected  to  the  penalties  imposed 
for  deliberate  and  conscious  violation  of  the  law. 

The  vital  part  of  the  whole  process  is  the  reassessment  statute. 
And  it  is  important  to  note  that  in  essence  this  statute  constitutes 
a  practical  remedy  for  tax  discrimination.  It  is  not  a  threat;  it 
is  not  a  club;  it  does  not  replace  the  local  assessor  with  the  state 
assessor;  what  it  does  is  to  make  of  the  tax  commission  a  people's 
court  in  which  any  person  with  a  real  grievance  may  get  justice 
without  the  necessity  of  employing  counsel,  in  accordance  with  an 
easy  informal  procedure  which. aims  to  get  at  the  real  facts  in  the 
most  inexpensive  way  possible.  Such  procedure,  such  a  court, 
ought  to  appeal  to  the  American  people  and  to  the  average  Ameri- 
can legislature.  This  machinery  may  by  inaccurate  description, 
be  made  to  take  the  appearance  of  the  iron  hand  of  a  centralized 
state  government,  unduly  interfering  in  local  affairs.  It  does  not 
mean  that.  It  means  the  opening  of  an  easy  portal  to  an  informal 
tribunal  where  the  average  individual  can  get  justice.  This  is 
its  essential  meaning  and  design.  This  is  the  way  in  which  it  should 
be  described  and  discussed. 

A  word  should  be  said  about  the  county  equalizations.  After 
the  local  assessors  have  completed  their  work,  each  county  board 
equalizes  the  assessments  of  the  several  districts  within  its  jurisdic- 
tion. These  county  equalizations  used  to  be  in  many  districts  mere 
matters  of  pull  and  haul.  The  city  districts  lined  up  against  the 
country  districts.  Or  some  skillful  city  leader  arranged  a  coalition 
with  a  limited  number  of  the  rural  districts  in  order  to  take  ad- 
vantage of  the  other  districts.  The  equalizations  were  made  with- 
out systematic  investigation  and  without  an  adequate  basis  of  fact. 
At  the  present  time  we  have  the  facts  on  which  to  make  these 
equalizations  substantially  accurate ;  and  our  supervisors  of  assess- 
ment have  been  able  in  the  last  couple  of  years  to  convince  most  of 
the  county  boards  that  their  figures  are  more  trustworthy  than 
the  guesses  in  which  many  county  boards  have  in  the  past  indulged. 
Our  county  equalizations  are  not  yet  perfect,  because  an  adequate 
body  of  facts  is  difficult  to  get  and  because  our  income  assessors 
or  supervisors  of  assessment  are  only  human.  But  they  are  much 
better  than  they  have  ever  been  in  the  past,  and  the  time  is  near 
when  disputes  over  county  equalizations  will  be  practically  elim- 
inated. Nothing  in  the  long  run  can  stand  up  against  a  body  of 
systematized  facts,  impartially  collected  and  fairly  analyzed. 


TAXATION    IN    INDIANA  131 

It  is  of  course  proper  for  the  members  of  the  county  board  to 
use  their  judgment  in  making  these  equalizations  and  improve  upon 
the  work  of  the  supervisor  .of  assessment  if  it  is  possible  for  them 
to  do  so.  If,  however,  they  threaten  merely  to  disregard  the  work 
of  the  supervisor  and  go  back  to  the  old  log-rolling  practices,  the 
supervisor  may  say  to  them :  "I  cannot  control  your  action  in  this 
matter  but  if  you  make  an  unlawful  equalization  and  any  aggrieved 
district  complains  to  the  tax  commission,  the  commission  will  be 
forced  to  order  a  re-equalization,  carried  out  at  the  expense  of 
the  districts  which  wrongfully  benefited  by  the  first  equalization/' 
But  in  the  long  run  advice  of  this  kind  is  unnecessary.  Facts  will 
tell,  and  if  the  supervisor  gets  the  facts  the  victory  in  the  long  run 
must  be  his. 

There  is  one  other  aspect  of  the  state  tax  commission  which  I 
should  mention  and  that  is  its  economy.  The  American  people  are 
curiously  wedded  to  direct  taxation.  They  insist  upon  using  this 
difficult  and  expensive  method  of  taxation,  and  the  instinct  is  prob- 
ably sound  which  persuades  them  that  direct  taxes  are  better  than 
the  relatively  easy  and  inexpensive  methods  of  indirect  taxation. 
But  if  they  insist  on  using  direct  taxation,  then  they  must  have 
the  necessary  machinery.  The  average  man  is  no  more  fitted  to 
appraise  a  great  industrial  establishment  than  he  would  be  to  pass 
upon  the  qualifications  of  two  competing  Sanskrit  scholars.  We 
must  have  specialized  ability.  A  state  tax  commission  can  furnish 
at  minimum  expense  a  central  reserve  of  expert  aid  to  assist  local 
assessors  in  their  work ;  and  this  is  done  in  Wisconsin.  We  main- 
tain, in  company  with  the  railroad  commission  a  large  number  .of 
experts  who  are  not  only  employed  in  appraising  public  utilities 
and  making  reassessments,  but  are  constantly  at  the  call  of  local 
assessors  who  desire  assistance  in  their  work. 

Under  the  system  which  I  have  been  describing,  the  tax  com- 
mission has  over  the  local  assessor  no  compulsory  power  though 
it  has  a  corrective  power.  Nothing  more  in  my  opinion  is  desira- 
ble. You  get  the  centralization  which  comes  from  the  uniform 
direction  of  the  tax  commission  working  out  through  forty-one 
supervisors.  You  get  unity  of  action,  unity  of  interpretation,  iden- 
tity of  treatment  of  different  questions  and  different  interests. 
You  get  the  amount  of  centralization  necessary  to  give  coherence 
and  power,  but  retain  the  element  of  decentralization  which  Ameri- 
can democracy  demands. 

I  have  confined  my  remarks  to  Wisconsin  methods  and  problems 
because  that  promised  to  be  more  profitable  than  a  theoretical  or 


132  INDIANA    UNIVERSITY 

general  discussion.  I  hope  you  will  forgive  what  would  seem  to  be 
an  element  of  boastfulness  in  what  I  have  been  saying.  We  have 
a  very  poor  system  in  many  ways.  Many  defects  remain,  and 
there  is  an  infinite  amount  yet  to  be  accomplished;  but  the  more 
I  look  over  our  general  tax  machinery  the  more  I  am  convinced 
that  it  represents  a  good  system.  It  is  good  because  it  solves  Mr. 
Link's  paradox — it  harmonizes  centralization  and  local  self-govern- 
ment. We  must  beware  of  the  danger  of  over-centralization.  At 
present  of  course  we  have  in  most  places  much  too  much  decentrali- 
zation. We  are  fettered  and  tied  because  power  and  responsibility 
are  so  thoroughly  diffused.  But  that  ought  not  to  inspire  in  us  an 
unwise  reaction  in  the  opposite  direction.  The  feeling  for  local 
autonomy  is  based  upon  generations  of  political  experience,  and  it 
must  not  lightly  be  disregarded.  In  order  to  preserve  the  proper 
balance  in  Wisconsin  we  have  introduced  a  home  rule  amendment 
which  has  already  passed  one  session  of  the  legislature  and  which 
will — if  approved  by  another  session  of  the  legislature  and  then 
ratified  by  popular  vote — authorize  counties,  towns,  cities  and 
villages  to  exempt  for  purposes  of  local  taxation  designated  classes 
of  property.  The  precise  language  of  the  amendment  is  as  fol- 
lows: 

"The  legislature  shall  have  power  to  authorize  counties,  towns, 
cities  and  villages  by  vote  of  the  electors  therein  to  exempt  from 
taxation  in  whole  or  in  part  designated  classes  of  property;  but 
the  value  of  such  property  exempted  by  any  county  shall  be  in- 
cluded in  the  assessment  and  equalization  for  state  purposes,  and 
the  value  of  such  property  exempted  by  any  town,  city  or  village 
shall  be  included  in  the  assessment  and  equalization  for  state  and 
county  purposes." 

The  Wisconsin  amendment  proposes  a  new  kind  of  local  option. 
The  old  kind  made  the  mistake  of  empowering  small  local  districts 
to  decide  what  property  should  be  assessed  for  county  and  state 
taxation.  The  state  ought  to  insist  that  it  shall  fix  the  conditions 
of  state  taxation ;  but  we  ought  to  recognize  at  the  same  time  that 
the  local  districts  are  entitled  to  a  certain  amount  of  power  and 
discretion.  We  must  not  emasculate  the  ordinary  local  community. 
It  is  impossible  in  the  first  place,  and  it  ought  to  be  impossible. 

The  amendment  proposed  in  Wisconsin  provides  for  that  very 
thing.  It  says  that  within  limits  designated  by  the  legislature  the 
town,  city  or  village  shall  determine  what  property  may  be  ex- 
empted from  local  taxation.  The  city  would  have  power,  for  in- 


TAXATION   IN   INDIANA  133 

stance,  to  authorize  some  little  exemption  for  buildings,  or  make 
some  allowance  for  manufacturing  plants.  And  the  same  power 
is  given  to  the  county  with  respect  to  county  taxation.  Each 
could  determine  its  own  system ;  and  the  state  assessments  would  be 
made  by  the  supervisors  of  assessment.  Their  existence  makes  possi- 
ble the  kind  of  local  option  which  we  in  Wisconsin  have  in  mind. 
And  it  is  useless,  I  think,  to  point  out  that  this  kind  of  local  option 
involves  some  little  administrative  trouble  and  readjustment.  Of 
course  it  does — but  it  is  coming  whether  we  like  it  or  not.  It  is* 
not  a  question  of  whether  we  are  going  to  have  local  option  or  not : 
the  question  is  what  kind  of  local  option  we  are  going  to  have,  and 
how  soon,  and  whether  buttressed  by  that  amount  of  centralization 
which  equally  with  local  freedom,  the  facts  and  necessities  of  the 
situation  imperatively  demand.  (Applause.) 

CHAIRMAN  REMY  :  At  this  point  it  has  been  suggested  that  we 
hear  the  report  from  the  Nominating  Committee  on  the  organiza- 
tion of  the  Indiana  Tax  Association.  If  there  is  no  objection  I 
will  call  on  Mr.  Lewis,  Chairman  of  that  Committee,  to  make  his 
report  at  this  time. 

.REPORT   OF   COMMITTEE   ON  NOMINATIONS  FOR   OFFICERS   OF  THE 
INDIANA  TAX  ASSOCIATION 

MR.  EARNEST  I.  LEWIS:  Mr.  President,  and  gentlemen — In 
order  that  all  may  undertand  what  I  am  to  make  a  report  on  it  is 
well  to  refe^  to  the  fact  that  last  evening  we  decided  to  organize  in 
this  state  an  Indiana  Tax  Association  whose  chief  function  shall 
be  the  study  of  taxation,  and  to  seek  reform  in  administration,  and 
also  the  betterment  of  the  system.  I  am  reporting  for  the  Commit- 
tee, the  Committee  on  Nominations  which  was  appointed  last  eve- 
ning. I  know  that  it  is  customary  in  the  report  of  such  a  committee 
to  simply  read  the  list  of  names  that  we  have  decided  on,  and  to 
railroad  them  through.  I  do  not  purpose  to  do  any  such  thing 
today. 

First,  this  committee  has  a  little  larger  duty  to  perform  than 
simply  the  selection  of  officials  for  an  organization,  because  in  the 
recommendations,  I  mean  in  the  resolutions  adopted  last  evening, 
the  fourth  clause  says: 

"That  the  officers  of  the  Association  for  the  ensuing  year  shall 
be  a  President,  three  Vice-Presidents,  Secretary  and  Treasurer, 
who  shall  constitute  the  Executive  Committee." 


134  INDIANA   UNIVERSITY 

We  will  suggest  that  there  be  five  Vice-Presidents  instead  of 
three,  for  reasons  which  I  will  state  later.  Then  the  fifth  clause 
of  the  report  of  the  Committee  says: 

"The  Executive  Committee  shall  formulate  a  constitution  and 
necessary  by-laws,  which  shall  be  the  constitution  and  by-laws  of 
this  Association  until  the  close  of  the  next  convention." 

The  scheme  contemplates  the  calling  of  another  tax  convention. 
Then  it  says: 

' '  The  Committee  shall  fix  the  basis  of  membership  and  the  basis 
of  representation  in  the  next  convention  for  voting  purposes." 

In  reference  to  that  clause  I  want  at  this  time  to  say  that  pat- 
terning after  the  National  Association,  and  taking  the  hint  from 
it,  it  is  found  advisable  to  place  limitations  on. membership,  for 
reasons  which  will  be  apparent  to  many.  Therefore  we  are  to 
select  not  only  officials  for  the  more  or  less  temporary  organiza- 
tion until  the  next  convention  meets,  but  we  are  also  to  select  from 
this  body  really  an  Organization  Committee,  the  Secretary  and 
Treasurer  as  well  as  the  President  and  Vice-President ;  they  all  link 
in  together  with  equal  voice  in  deciding  really  what  kind  of  a 
permanent  organization  we  are  to  have.  Modern  science  declares 
that  at  least  the  child  has  the  right  of  good  birth,  and  that  is  the 
theory  on  which  your  Committee  has  proceeded  in  the  selection  of 
these  members  who  are  more,  really,  as  I  have  said,  than  officers 
so  designated.  It  is  then  up  to  the  child  to  build  character,  or  fail 
to  do  it.  At  all  events,  we  want  to  give  this  child  a  fair  start. 
The  thought  was  given  expression  yesterday  several  times,  and  I 
found  it  pretty  general  in  our  conferences  with  various  people 
last  night,  that  it  is  highly  desirable  that  this  Association  be  given 
the  dignity  and  the  protection  that  is  accorded  to  this  conference 
that  is  being  held  here  today — that  is,  to  bring  it  in  very  close 
relation  to  the  State  University  extension  work.  On  the  other  hand, 
this  Association  wants  to  have  very  close  connection  with  the 
State  Tax  Board.  That  is  for  various  and  obvious  reasons.  First, 
there  is  no  reason  why  this  State  Tax  Association  should  not  work 
in  close  accord,  so  far  as  possible,  at  least,  and  so  far  as  the  Tax 
Hoard  wants  to  go  in  progressive  measures,  in  full  harmony  with  it. 

Now  with  those  preliminary  remarks  upon  our  recommenda- 
tions, I  am  going  to  make  a  few  remarks  on  the  selection  of  these 
various  people  whom  we  nominate  to  fill  the  various  positions  in 
the  organization  of  the  Indiana  Tax  Association.  It  may  be  out 


TAXATION   IN   INDIANA  135 

of  the  ordinary,  and  some  people  may  think  it  is  not  quite  the  right 
thing,  nevertheless  I  think  it  is  well  to  give  the  reasons  why  we 
have  selected  these  people. 

Your  Committee  recommends  for  President,  William  A.  Rawles, 
Professor  of  Political  Economy  in  Indiana  University.  The  rea- 
son for  this  selection  is  that  it  will  very  closely  connect  up  this 
effort  to  study  taxation  and  disseminate  information  on  taxation 
throughout  the  state  with  the  State  University  and  this  extension 
work.  I  think  that  is^yery  legitimate.  In  the  second  place,  it  will 
give  it  protection  from  influences  which  at  the  beginning,  at  all 
events,  we  want  to  guard  against.  The  State  University  should, 
through  this  appointment,  be  more  or  less  concerned  in  the  welfare 
and  the  course  this  Association  follows  for  at  least  a  year. 

We  have  thought  it  advisable  to  enlarge  on  your  recommenda- 
tion for  the  nomination  of  three  Vice-Presidents,  and  nominate 
five.  Our  first  selection  in  the  way  of  Vice-Presidents,  although 
we  art;  not  going  to  give  them  in  numerical  order,  this  being  more 
or  less  of  a  temporary  organization,  is  State  Tax  Commissioner 
Dan  M.  Link.  Mr.  Link  is  selected  here  and  recommended  to  you 
for  the  reason  that  he  is  the  ranking  member,  the  Dean  you  might 
say  of  the  State  Tax  Board.  He  is  also  of  the  dominant  political 
party,  and  his  selection  should  open  a  direct  channel  whereby  the 
Governor  of  the  State  of  Indiana  and  the  state  administration  can 
be  in  touch  with  us,  to  a  limited  extent  at  least.  We  think  it  is 
very  desirable  that  we  work  in  accord  with  the  state  house,  so  far  as 
possible. 

Without  numerical  order  still,  we  name  and  recommend  as 
another  Vice-President  John  B.  Stoll,  who  is  a  sturdy  and  sterling 
character,  and  his  life-long  service  in  northern  Indiana  in  molding 
thought  certainly  recommends  him  to  the  people  of  Indiana.  I 
think  his  connection  with  the  Association  will  give  it  considerable 
strength  all  over  the  state,  and  particularly  in  northern  Indiana, 

Another  recommendation  for  Vice-President  is  that  of  Mr. 
Fred  A.  Sims.  Anyone  that  heard  Mr.  Sims's  address  here  yester- 
day must  be  impressed  with  the  fact  that  he  certainly  has  a  broad 
grasp  on  this  problem. 

For  another  Vice-President,  without  numerical  order,  we  nom- 
inate L.  S.  Bowman.  Mr.  Bowman  is  Auditor  of  Wayne  County, 
Indiana.  He  is  in  the  eastern  part  of  the  state ;  and  since  County 
Auditors  are  so  directly  connected  with  the  local  taxing  machinery, 
and  Mr.  Bowman  takes  enough  interest  in  the  matter  to  come  here 


136  INDIANA   UNIVERSITY 

to  this  conference,  it  seems  at  least  that  we  should  recognize  the 
fact  and  give  him  some  encouragement. 

For  the  other  Vice-President  we  recommend  John  A.  Lapp, 
Director  of  the  Bureau  of  Legislative  and  Administrative  Infor- 
mation. Mr.  Lapp,  by  the  very  nature  of  his  work,  is  in  touch 
with  what  other  states  are  doing  in  the  drafting  of  laws,  etc.  The 
state  provides  him  with  a  fine  library  and  a  salaried  secretary,  and 
he  has  been  very  effective  in  aid  of  the  enactment  of  the  vocational 
education  law  and  such  other  measures  as  -the  public  utility  acts, 
all  of  which  recommend  him  for  the  position  of  one  of  the  Vice- 
Presidents. 

For  Secretary  we  recommend  Mr.  Fred  Bates  Johnson,  of  In- 
dianapolis, whose  experience  in  newspaper  work  has  equipped 
him  to  get  information  to  all  the  people  of  the  State  of  Indiana. 
He  has  also,  I  might  say,  a  peculiar  faculty  for  knowing  what  is 
going  on  and  keeping  in  touch  with  conditions  all  over  the  state. 

For  Treasurer  we  recommend  W.  K.  Stewart,  of  Indianapolis, 
of  whom  you  probably  have  all  heard. 

Let  me  say  in  passing  that  we  have  also  tried,  while  we  didn't 
want  political  influences  in  the  least  to  be  dominant  here,  still 
we  have  tried  to  have  different  political  opinions  somewhat  repre- 
sented. The  analysis  of  this  list  will  show  that  they  are  fairly 
well  represented. 

Let  us  suggest  to  you  that  several  people  who  have  studied  the 
tax  system  in  Indiana,  and  are  familiar  with  it  from  long  expe- 
rience, have  suggested  that  there  are  many  practical  men  that 
should  be  identified  with  this  work.  It  is  not  the  intention  to 
eliminate  anyone,  but  it  is  the  intention  here  to  organize  what 
you  might  call  a  Board  of  Directors,  to  get  together,  and  get  this 
thing  started,  and  get  it  started  under  what  we  might  deem  to  be 
the  right  prestige. 

It  might  impress  some  that  the  direction  of  this  organization 
from  the  first  is  along  rather  academic  lines.  I  do  not  believe  it  is. 
We  have  got  it  pretty  well  balanced,  it  seems  to  me.  However, 
it  has  been  suggested  that  possibly  when  they  come  to  work  out 
their  perfected  organization  that  this  formal  committee  composed 
of  the  officers  will  see  fit  to  organize  by  districts,  and  in  that  way, 
as  chairman  of  the  districts,  get  in  as  many  practical  men  as  possi- 
ble, who  will  be  of  immense  service,  and  should  be  included  in  this 
organization.  That  is  the  report  the  Committee  desires  to  make. 


TAXATION   IN   INDIANA  137 

CHAIRMAN  REMY:  Gentlemen  of  the  conference,  you  have 
heard  the  report  of  the  Committee  on  Nominations  for  officers  of 
the  Indiana  Tax  Association.  What  is  your  pleasure  with  refer- 
ence to  the  report  of  the  Committee?  It  is  the  report  of  the 
Committee  on  Nominations. 

MR.  JAMES  PUTNAM,  of  Indianapolis:     Mr.  Chairman,  I  move 
the  adoption  of  the  report. 
[The  motion  was  seconded.] 

CHAIRMAN  REMY:  Gentlemen,  you  have  heard  the  report  of 
the  Committee.  It  is  moved  and  seconded  that  the  report  of  the 
Committee  be  adopted.  The  conference  understands  that  the 
adoption  of  this  motion  carries  with  it  the  election  of  the  persons 
nominated  by  the  committee  to  the  offices  in  connection  with 
which  they  are  named.  All  in  favor  of  that  motion  will  make  it 
known  by  saying  aye.  Contrary,  no.  The  ayes  have  it,  and  it  is 
so  ordered. 

Next  in  order  this  morning  is  the  address,  or  paper,  on  the  sub- 
ject, " Classification  of  Land  for  Purposes  of  Taxation,"  by  the 
gentleman  who,  more  than  any  other,  is  responsible  for  this  Tax 
Conference,  Dr.  William  A.  Rawles,  of  Indiana  University. 

CLASSIFICATION  OP  LAND  FOR  PURPOSES  OF  TAXATION 

DR.  RAWLES:  Mr.  Chairman  and  members  of  the  Tax  Con- 
ference— I  do  not  wish  to  appear  unappreciative  of  the  confidence 
which  has  been  shown  me,  but  I  had  hoped  that  some  man  of  more 
practical  experience  in  the  business  and  political  world,  who  is 
more  widely  known  throughout  the  state,  might  be  selected  for 
President  of  the  Association. 

I  know  that  in  some  quarters  there  is  a  disposition  to  look 
with  some  suspicion  upon  a  college  professor,  as  not  a  man  of 
common  sense  and  practical  affairs.  I  hope  that  this  suspicion 
will  not  injure  this  Association  in  the  very  beginning.  I  feel  that 
the  honor  comes  to  me,  not  so  much  because  of  any  merit  of  my 
own,  but  because  of  my  relation  to  the  University,  and  therefore 
because  of  the  honor  which  is  bestowed  upon  the  University  I  wish 
to  thank  you  very  heartily. 

The  first  enactment  of  the  Northwest  Territory  which  author- 
ized the  raising  of  taxes  was  passed  in  1792.  It  imposed  upon  the 
authorities  the  duty  of  apportioning  the  taxes  among  the  inhabi- 
tants of  each  district  "according  to  the  best  of  their  judgment  in 


138  INDIANA   UNIVERSITY 

just  proportion  to  the  wealth  in  the  county  and  ability  to  pay.'.' 
Though  awkwardly  stated,  this  was  a  recognition  of  the  faculty 
theory  of  taxation — that  each  should  bear  the  financial  burden  in 
proportion  to  his  taxable  ability.  To  prevent  any  partiality  or 
injustice,  the  law  provided  that  any  one  who  thought  himself 
unreasonably  assessed  might  petition  the  local  courts  or  the  Gen- 
eral Court  of  the  Territory  for  relief. 

Since  that  time  down  to  the  present  earnest  efforts  have  been 
made,  though  sometimes  in  a  blind  and  groping  way,  to  adjust  the 
tax  system  to  the  changing  economic  and  social  conditions.  The 
aims  have  been,  generally,  to  provide  adequate  revenue  for  the 
expanding  needs  of  society;  to  increase  administrative  efficiency; 
to  avoid  measures  which  would  retard  economic  development; 
and  finally  to  make  the  system  conform  to  the  ethical  requirements 
of  universality  and  equality  in  taxation.  Sometimes  one  of  these 
motives  has  been  dominant  and  sometimes  another.  But  in  spite 
of  all  the  progress  which  has  been  made  our  system  is  still  far 
from  ideal.  In  the  present  day  discussion  of  taxation  the  dominant 
purpose  is  to  point  out  the  way  by  which  a  greater  degree  of 
justice  may  be  secured.  It  is  my  own  view  that  constitutional 
limitations  stand  in  the  way  of  a  full  attainment  of  that  end.  It 
is  the  purpose  of  this  paper,  however,  to  attempt  to  show  that  even 
under  the  existing  restrictions  of  the  constitution  changes  in  our 
methods  of  administration  may  be  made  which  will  not  only  tend 
toward  approximate  justice  among  the  taxpayers  but  will  insure 
greater  revenue  to  the  state. 

Under  the  present  constitution  the  state  government  and  the 
local  governments  rely  upon  the  general  property  tax  for  about 
85  per  cent,  of  their  revenues.  Taxes  on  land  constitute  about 
forty  per  cent,  of  the  revenue  for  state  and  local  purposes. 

Under  any  general  property  tax  there  are  three  important  gov- 
ernmental functions,  namely,  prescribing  the  rates  by  the  properly 
constituted  authorities,  determining  the  base  of  the  assessed  value 
of  the  property  subject  to  taxation  and  collecting  the  revenue. 
We  are  apt  to  watch  closely  the  rate  of  taxation  and  fail  to  empha- 
size properly  the  importance  of  the  assessing  process,  that  is,  the 
determining  of  the  sum  or  base  which  multiplied  by  the  rate  will 
give  the  amount  of  tax  which  the  owner  of  any  specific  property 
must  pay.  The  levying  of  a  tax  or  fixing  of  a  rate  is  regarded 
as  a  sovereign  power  and  the -taxpayer  is  safe-guarded  by  consti- 
tutional restrictions  and  statutes.  But  the  determination  of  the 


TAXATION   IN   INDIANA  139 

base,  which  is  quite  as  vital  to  the  taxpayer  as  the  fixing  of  the 
rate,  is  left  almost  entirely  to  the  judgment  or  caprice  of  a  minor 
official;  he  is  limited  in  the  exercise  of  his  power  only  by  the  au- 
thority of  equalizing  boards  which  often  do  not  have  sufficient  data 
upon  which  to  make  an  accurate  revision  of  the  assessment. 

In  the  assessment  of  tangible  personal  property  the  assessor's 
schedule  specifies  over  a  hundred  classes  of  personalty,  the  value 
and,  in  many  cases,  the  number  of  units  of  which  must  be  returned. 
The  object  of  this  detailed  itemization  is  to  insure  greater  accuracy 
in  the  determination  of  the  assessed  valuation  and  pro  tanto  greater 
equality  among  tax-payers.  But  in  the  assessment  of  real  property 
which  constitutes  about  two  thirds  of  all  property  not  more  than 
four  classes  are  specified:  lands  (rural),  in-lots,  out-lots  and 
improvements.  In  the  abstract  of  the  tax  duplicate  as  published 
in  the  report  of  the  Auditor  of  State  the  value  of  the  urban  land 
and  the  value  of  rural  land  are  not  shown  separately.  Neither  is 
the  number  of  acres,  nor  the  number  of  lots  designated  for  the 
different  counties  or  cities.  This  makes  it  impossible  for  a  resi- 
dent of  one  county  to  make  any  accurate  comparison  between  the 
assessed  valuation  of  the  unit  in  his  county  and  the  assessed  valu- 
ation of  the  unit  in  the  adjoining  or  any  other  county.  Likewise 
it  is  difficult  for  boards  of  review  to  correct  inequalities.  It  is  the 
contention  of  the  speaker  that  a  more  scientific  classification  of 
land  will  insure  a  greater  revenue  and  at  the  same  time  mitigate 
the  inequalities  of  assessment.  Opportunity  for  accurate  compari- 
son of  values  tends  to  minimize  the  number  of  instances  of  under- 
valuation and  at  the  same  time  affords  a  means  of  correcting  in- 
equalities when  they  do  exist.  But  comparison  is  impossible  without 
statistical  data,  and  such  data  cannot  be  obtained  without  detailed 
classification. 

At  the  Conference  on  State  and  Local  Taxation  held  at  Louis- 
ville, Kentucky,  in  1909,  a  Committee  on  Uniform  Classification 
of  Real  Estate  was  appointed.  This  committee  was  composed  of 
administrators  of  tax  laws.  The  substance  of  the  first  report  of 
the  committee  presented  at  the  Tax  Conference  in  the  following 
year,  was  as  follows:  that  without  a  proper  statistical  basis,  true 
comparison  between  states  and  localities  is  impossible,  and  without 
true  comparison  the  determination  of  the  real  economic  effects  of 
tax  laws  and  their  administration  is  impossible;  that  the  intent 
of  all  general  tax  laws  is  to  produce  equality  of  tax  burdens  among 
taxpayers  by  means  of  fair  ancl  accurate  assessments  \  that  fair 


140  INDIANA   UNIVERSITY 

and  accurate  assessment  of  real  estate  will  be  promoted  by  the 
adoption  of  tax  maps  and  the  classification  of  real  estate  as  pre- 
sented in  the  report;  and  that  an  intelligent  study,  analysis  and 
criticism  of  assessments  and  assessment  methods  will  be  promoted 
by  the  adoption  of  statistical  reports  as  presented  in  the  report 
of  the  Committee.1 

Our  laws  already  provide  for  the  separate  assessment  of  land 
and  improvements  and  require  a  distinction  between  urban  and 
rural  lands.  Taking,  first,  rural  lands  let  us  see  how  they  can 
be  further  classified  so  as  to  furnish  proper  statistical  data  for 
accurate  comparison  between  lands  lying  in  the  same  neighborhood 
or  in  different  localities.  The  value  of  land  is  determined  by  the 
use  to  which  it  is  devoted  or  may  be  devoted,  and  its  use  is  deter- 
mined by  its  quality  and  accessibility.  The  basis  of  classification 
should,  therefore,  be  the  principal  use  to  which  land  is  devoted. 
Accepting  this  as  the  proper  basis  and  adopting,  with  some  modifi- 
cation, the  classification  as  originally  suggested  by  Dr.  L.  G. 
Powers,  Chief  Statistician  of  the  Bureau  of  the  Census,  I  submit 
the  following  scheme  as  a  working  basis  for  Indiana: 

1.  Cultivated  land,  which  includes  all  land  under  cultivation 
or  being  used  for  meadows. 

2.  Arable  land,  which  includes  all  land  not  under  cultivation 
but  capable  of  being  plowed. 

3.  Pasture  land,  which  includes  all  land  devoted  to  grazing 
(excepting  that  included  under  timber  land)  ;  subdivided  into  (a) 
tillable  and  (b)  untillable  land. 

4.  Orchard  land,  which  includes  all  land  covered  by  fruit- 
bearing  trees. 

5.  Timber  land,  which  includes  all  land  covered  by  timber 
containing  not  less  than  -      -  trees  per  acre,  averaging  not  less 
than  -     -  inches  at  the  butt:   subdivided  into  (a)  land  used  for 
pasture  and  (b)  lands  not  used  for  pasture. 

6.  Mineral  land,  which  includes  all  lands  containing  coal  or 
other  minerals  in  quantity  to  pay  for  mining  them. 

7.  Quarry  land,  which  includes  all  land  containing  stone  in 
quantity  and  quality  sufficient  to  pay  for  removing  it. 

8.  Oil  and  gas  land,  which  includes  all  land  containing  oil 
or  gas  in  quantities  sufficient  to  pay  for  extracting  them. 

9.  Waste  land,  which  includes  all  land  not  included  in  any 
of  the  other  classes. 


1  Report  of  the  Proceedings  of  the  National  Conference  on  State  and  Local  Taxation,  1910,  p.  339. 


TAXATION    IN    INDIANA  141 

The  assessor  should  enter  in  his  field  book  all  assessments  in 
the  consecutive  order  in  which  properties  exist  along  the  various 
streets  and  roads  and  not  in  alphabetical  order.  This  arrangement 
makes  a  comparison  of  the  different  assessments  of  a  district  easy 
and  prevents  the  omission  of  property  from  the  tax  lists.  Index 
cards  should  be  used  to  assemble  all  the  property  of  an  individual 
under  his  name. 

The  field  books  should  also  contain  the  following  data:  (1) 
The  number  of  acres  in  each  parcel  of  land  separately  assessed, 
(2)  the  number  of  acres  in  each  class  of  l£nd  contained  within 
such  parcels,  (3)  the  minimum  and  maximum  value  of  an  acre 
of  each  of  the  nine  classes  of  land  within  his  district,  (4)  the  value 
of  the  amount  of  each  of  the  nine  classes  of  land  contained  in 
each  of  the  separate  parcels,  (5)  the  total  value  of  the  amounts 
of  all  classes  of  land  contained  in  each  parcel,  (6)  the  total  value 
including  buildings  and  improvements  of  each  separate  parcel, 
and  (7)  the  name  of  the  reputed  owner  of  each  separate  parcel. 
The  assessor  should  also  indicate  in  his  field  book  or  map  whether 
the  land  is  level,  rolling  or  hilly;  whether  it  is  prairie,  bottom  or 
upland ;  and  whether  the  soil  is  rocky,  shallow,  deep,  light  or  heavy. 
The  abstracts  furnished  the  State  Board  of  Tax  Commissioners 
should  show  for  each  county  the  total  number  of  acres  and  the  total 
value  of  land  for  each  county  and  the  minimum  and  maximum 
value  of  an  acre  of  each  class  of  land  in  the  county. 

It  might  be  desirable  in  the  assessment  of  timber  land,  mineral 
land,  quarry  land  and  oil  and  gas  land  to  provide  for  expert  assess- 
ors under  the  immediate  direction  of  the  Board  of  State  Tax 
Commissioners.  In  the  first  application  of  this  system  there  would 
be  some  difficulty  in  placing  certain  parcels  of  land  in  their  proper 
classes.  Under  the  advice  of  experts  employed  by  the  State  Board 
the  difficulties  would  gradually  disappear.  In  the  course  of  a 
few  years  valuable  statistical  data  would  be  secured.  With  such 
information  before  it,  Tiow  much  easier  it  would  be  for  a  county 
board  of  review  to  check  up  inequalities  in  the  assessment  of  indi- 
viduals or  townships !  And  how  much  more  readily  could  the 
State  Board  of  Tax  Commissioners  equalize  the  assessments  of 
counties ! 

Such  a  system  is  in  use  in  a  number  of  other  states.  It  has 
been  recently  adopted  in  Kansas  with  modifications  especially 
suited  to  that  state.  The  Kansas  Tax  Commission  reports  that 
material  is  available  which  will  make  possible  an  assessment  more 
equitable  than  any  yet  made. 


142  INDIANA    UNIVERSITY 

This  is  not  a  mechanical  device  which  can  be  applied  as  a  yard 
stick  to  the  measurement  of  some  tangible  object.  There  would 
still  be  need  for  the  exercise  of  judgment  on  the  part  of  the  assess- 
or, for  evaluating  a  thing  is  a  mental  process,  not  a  mechanical 
one;  but  such  information  would  afford  a  basis  for  more  accurate 
and,  therefore,  more  equitable  judgments. 

An  accurate  map  is  quite  as  essential  to  the  assessor  as  his  field 
book  and  assessment  roll.  The  sketch  maps  on  cross-section  paper 
now  used  in  Indiana  are  helpful.  But  they  should  be  worked  up 
in  greater  detail.  They  should  show  not  only  the  boundaries  and 
acreage  of  each  parcel  of  land  but  also  the  buildings  and  many  of 
the  natural  conditions  such  as  streams,  lakes,  ponds,  marshes,  the 
character  of  the  surface,  the  quality  of  the  soil  and  other  char- 
acteristics enumerated  in  the  classification  already  suggested.  It 
is  the  character  and  location  of  the  land  and  not  its  size  which 
determine  its  value.  The  original  maps  may  be  kept  in  the  county 
assessor's  office  and  tracings  be  furnished  township  assessors.  Maps 
give  the  assessor  a  perspective  or  a  bird's-eye  view  of  a  whole 
neighborhood.  They  enable  him  to  get  a  better  knowledge  of  the 
relative  values  included  in  the  assessing  district.  They  prevent 
the  omission  of  unreported  tracts.  They  are  indispensable  to  a 
county  board  of  review  for  the  purpose  of  fairly  equalizing  assess- 
ments. In  case  of  appeal  to  the  State  Board  of  Tax  Commissioners 
the  maps  should  be  transmitted  for  their  use. 

In  the  assessment  of  real  estate  in  towns  and  cities  it  is  essential 
that  lands  and  improvements  be  assessed  separately.  The  tax  law 
of  Indiana  requires  such  separation  at  present.  The  subject  of 
this  paper  is  limited  to  the  consideration  of  the  assessment  of  land 
only.  The  classification  of  urban  land  is  a  simple  matter;  for  it 
is  used  almost  exclusively  for  building  sites.  It  may  be  classified 
as  (a)  city  and  town  lots  actually  occupied  by  buildings  and  (b) 
unoccupied  city  and  town  lots  which  because  of  their  location  have 
no  prospective  use  except  as  building  sites.  If  urban  land  is  plotted 
it  should  be  classified  as  lots.  If  it  is  unplotted  it  is  more  con- 
venient to  classify  it  as  "undeveloped  town  lots  in  acres"  and 
assess  it  by  acreage. 

If  maps  constitute  a  valuable  aid  in  the  assessment  of  rural 
land  how  much  more  important  they  are  in  towns  and  cities.  The 
great  number  of  parcels  and  the  high  values  make  their  use  indis- 
pensable if  equitable  assessment  is  to  be  attained.  They  should 
be  accurate  and  be  promptly  revised  as  changes  occur.  The  most 


TAXATION    IN    INDIANA  143 

serviceable  plan  for  mapping  a  city  is  the  ''block  and  lot"  system. 
In  the  preparation  of  these  maps  the  city,  if  large,  is  usually 
divided  into  sections  or  wards.  The  sections  are  further  divided 
into  blocks  containing  one  or  more  squares.  The  blocks  are  bounded 
on  all  sides  by  streets,  or  streets  and  water  fronts.  They  are 
designated  by  numbers  from  one  upward  and  these  numbers  should 
not  be  changed.  Within  each  block  the  map  is  again  subdivided 
so  as  to  show  the  separate  lots  or  parcels  wnich  are  likewise  num- 
bered, consecutively  from  one  upward.  When  changes  of  owner- 
ship occur  and  lots  are  combined  or  further  divided  the  changes 
are  noted  on  the  maps  after  proper  survey.  In  some  cases  the 
numbers  only  are  entered  on  the  assessment  roll.  In  Newark,  N. 
J.,  the  assessor  begins  at  one  end  of  the  street  and  proceeds  to 
the  other  or  to  the  limit  of  his  assessment  district.  This  offers 
excellent  opportunity  for  comparison  of  values.  In  New  York 
the  assessors  list  the  lots  by  blocks.  This  insures  that  every  par- 
cel will  be  assessed  and  comparison  along  the  various  streets  is  made 
easy  by  the  use  of  land  value  maps. 

In  some  cities  the  block  and  lot  maps  are  supplemented  by  the 
use  of  land  value  maps.  These  are  designed  to  facilitate  the 
comparison  of  values  and  thus  to  bring  about  greater  uniformity 
in  assessment.  "They  are  based  on  the  general  principle  that  a 
more  or  less  definite  relationship  tends  to  exist  between  the  land 
value  of  lots  of  the  same  general  character  situated  in  the  same 
immediate  locality  or  in  other  localities  subject  to  similar  condi- 
tions."1 Land  value  maps  are  maps  which  show  for  the  area 
covered,  first,  all  streets  and  water  front  (the  section,  block,  and 
lot  lines  used  in  block  and  lot  maps  not  being  indicated),  and 
second,  by  figures  opposite  each  of  the  four  sides  of  each  square, 
the  value  per  front  foot  of  an  average  inside  lot  fronting  on  the 
street  along  which  the  figures  are  written,  running  straight  back 
from  the  street,  being  of  normal  grade  and  having  a  normal  depth, 
that  is,  the  usual  depth  of  the  lots  in  the  city.  If  the  values  of 
the  lots  on  the  opposite  sides  of  a  street  are  the  same,  the  figures 
representing  such  value  are  written  in  the  middle  of  the  street 
but  once.  If  the  values  on  the  opposite  sides  of  a  street  differ,  two 
sets  of  figures  are  used  to  record  the  values.  And  sometimes 
separate  figures  are  used  on  the  same  side  of  a  street  in  the  same 
square  when  the  value  per  front  foot  of  the  average  inside  lots 

*  Report  of  Department  of  Taxes  and  Assessments  of  New  York  City,  1913,  Appendix,  p.  127. 


144  INDIANA    UNIVERSITY 

varies  considerably.  In  case  land  is  not  plotted  the  value  per  acre  is 
shown  at  appropriate  points.3 

It  is  apparent  that  the  unit  of  area  in  a  city  cannot  be  an  acre 
as  in  the  case  of  rural  lands,  because  the  parcels  are  relatively  small. 
Neither  can  it  be  a  square  foot,  for  the  respective  square  feet  differ 
greatly  in  value.  The  unit  chosen  is  a  portion  of  land  having 
a  frontage  of  one  foot  and  a  depth  equal  to  that  of  the  average 
lot  of  the  city  or  the  section  of  the  city  under  consideration.  In 
New  York  this  depth  is  100  feet ;  in  Baltimore  it  is  150  feet.  It  is 
recognized  at  once  that  the  first  important  problem  to  be  solved 
by  the  assessors  or  the  board  which  directs  the  assessors  is  to  find 
the  value  of  the  unit,  that  is,  a  standard  by  which  to  measure  the 
value  of  each  parcel.  Having  determined  the  unit  of  area  which 
is  an  inside  lot  having  a  frontage  of  one  foot,  lying  at  right  angles 
to  the  street,  being  of  normal  grade  and  having  a  normal  depth, 
its  value  may  be  called  the  "unit  value/' 

In  order  to  show  the  method  of  determining  such  a  unit  value, 
I  quote  from  the  report  of  the  Philadelphia  Advisory  Committee 
on  Municipal  Finance,  submitted  in  May,  1913  :4 

"a.     Select  an  inside  lot  near  the  center  of  the  square. 

"b.  Ascertain  the  value  of  the  land  contained  therein  as  apart 
from  that  of  the  buildings  or  improvements. 

"c.     If  it  is  off-grade,  allow  for  that  fact. 

"d.  If  it  is  of  more  or  less  than  average  depth,  calculate  its 
value  as  if  of  normal  depth  (for  example,  100  or  150  feet). 

"e.  If  it  is  of  irregular  shape,  add  from  adjoining  property 
or  subtract  from  the  lot  itself  to  make  it  a  square  or  rectangular 
lot  at  right  angles  to  the  street  and  allow  for  such  addition  or 
subtraction  in  determining  values. 

"/.  If  it  has  any  other  peculiarities  differentiating  it  from 
the  other  inside  lots  fronting  on  the  same  square,  allow  for  all  such 
peculiarities. 

"g.  Having  done  all  this,  divide  the  value  arrived  at  by  the 
number  of  feet  frontage  and  the  quotient  will  be  a  tentative  figure, 
for  the  unit  value. 

lih.  This  should  be  checked  up  by  treating  similarly  various 
other  inside  lots  on  the  same  square,  and  by  obtaining,  through 
proper  publicity  all  possible  criticism  and  suggestion. 

"i.  If  it  is  found  that  there  is  a  marked  difference  in  the  land 
values  of  different  inside  lots  in  the  same  square  and  on  the  same 

•Ibid,  p.  128. 
*Ibid,  p.  129. 


TAXATION    IN    INDIANA  145 

side  of  the  street,  more  than  one  unit  value  should  be  set  down 
at  appropriate  points  on  the  map  for  such  a  square." 

Having  the  "unit  value"  and  having  ascertained  the  frontage 
of  a  normal  lot,  that  is,  a  lot  lying  at  right  angles  to  the  street, 
being  of  normal  grade  and  having  a  normal  depth,  the  determina- 
tion of  its  total  value  is  a  matter  of  multiplication.  "But,"  you 
say,  "many  lots  are  not  normal  because  they  vary  in  depth,  are 
irregular  in  shape,  lie  above  or  below  grade  or  are  affected  by 
'corner  influence'  or  other  factors  of  value  and,  therefore,  your 
rule  cannot  be  arithmetically  applied  with  accurate  results."  It 
is  true  that  many  variations  do  occur  and  if  the  allowances  that 
must  be  made  for  these  departures  from  the  normal  lot  cannot  be 
calculated  accurately  the  system  will  be  of  little  assistance  in  de- 
termining the  value  of  urban  land. 

Let  us  consider  these  variations  from  the  normal.  In  case  a 
certain  lot  is  off-grade  it  can  be  easily  estimated  what  will  be  the 
cost  to  fill  it  up  or  cut  it  down  to  grade.  This  expense  should  be 
deducted  from  the  value  of  a  normal  lot  and  the  remainder  would 
be  the  value  of  the  particular  lot. 

In  determining  the  value  of  a  short  or  long  lot  several  rules 
have  been  worked  out  as  a  result  of  wide  experience.  These  are 
sometimes  called  "long  and  short  lot  rules."  These  are  based  upon 
the  fact  that  there  is  a  mathematical  relation  existing  between  any 
two  portions  of  a  lot  lying  at  varying  distances  from  the  street 
front  such  that  the  values  of  the  portions  decrease  with  the  increase 
of  distance. 

While  there  is  a  variation  in  the  rules,  their  differences  are 
negligible.  The  one  selected  for  any  particular  city  should  be 
adapted  to  meet  the  local  conditions.  The  simplest  but  least  satis- 
factory rule  is  the  "four-three-two-one"  rule.  According  to  this 
rule,  beginning  at  the  street  frontage  the  first  25  feet  of  a  lot  100 
feet  in  depth  are  worth  40  per  cent,  of  the  whole;  the  next  25 
feet  are  worth  30  per  cent,  of  the  whole;  the  third  25  feet,  20  per 
cent ;  and  the  last  25  feet,  10  per  cent,  of  the  whole.  The  Hoffman- 
Neill  rule,  the  Newark  rule,  the  Somers  rule  and  the  Lindsay-Ber- 
nard rule  are  more  accurate.  The  last,  which  is  used  in  Baltimore, 
is  based  upon  a  unit  depth  of  150  feet;  the  others,  upon  a  unit 
depth  of  100  feet.  Their  variations  can  be  most  readily  shown 
by  the  following  graph,  based  upon  the  percentage  tables.5 

•  Condensed  table  showing  the  percentage  of  unit  value  for  lots  of  varying  depth  : 

10— S48 


146 


INDIANA    UNIVERSITY 


Hoffman-Neil  Rule. 


Per  cent  of  unit. 
Per  cent  of  unit  . 


Depth  oflot  .........   10  Per  cent,  of  unit. 

Depth  of  lot  .........  20  Per  cent  of  unit.  . 

Depth  of  lot  .........  30  Per  cent  of  unit. 

Depth  of  lot  .........  40 

Depth  of  lot  .........  50 

Depth  of  lot  .........  60  Per  cent  of  unit. 

Depth  of  lot  ........  70  Per  cent  of  unit. 

Depth  of  lot  .........  80  Per  cent  of  unit. 

Depth  of  lot  .........  90  Per  cent  of  unit. 

Depth  of  lot  .........  100  Per  cent  of  unit. 

Depth  of  lot  .........  110  ................. 

Depth  of  lot  .........  120  .................. 

Depth  of  lot  .........  130  .  ................ 

Depth  of  lot  .........  140  ................. 

Depth  of  lot  .........  150  ................. 


.100 


Lindsay-Bernard  Rule. 
Per  cent  of  unit. 

Per  cent  of  unit 27 

Per  cent  of  unit. . . 
Per  cent  of  unit. .. 
Per  cent  of  unit. .. 
Per  cent  of  unit. .. 
Per  cent  of  unit . . . 
Per  cent  of  unit. . . 
Per  cent  of  unit. . . 
Per  cent  of  unit. . . 
Percent  of  unit... 
Per  cent  of  unit . . . 

Per  cent  of  unit 

Per  cent  of  unit . . . 
Per  cent  of  unit 100 


Somers  Rule. 


.  15 

Per  cent  of  unit  . 

.  25 

.  27 

Per  cent  of  unit  . 

.  41 

38.5 

Per  cent  of  unit  . 

.  54 

49 

Per  cent  of  unit  . 

.  64 

58.5 

Per  cent  of  unit  . 

.  72.5 

67 

Per  cent  of  unit. 

.  79.5 

73.9 

Per  cent  of  unit  . 

.  85.6 

79.6 

Per  cent  of  unit. 

.  90.9 

84.2 

Per  cent  of  unit  . 

.  95.6 

88 

Per  cent  of  unit  . 

.100 

91.1 

Per  cent  of  unit  . 

.104 

93.8 

Percent  of  unit. 

.107.5 

96.1 

Per  cent  of  unit. 

,110.5 

98.2 

Per  cent  of  unit  . 

.113 

100 

Per  cent  of  unit. 

,115 

More  complete  tables  will  be  found  in  the  Report  of  the  Department  of  Taxes  and  Assessments  of 
New  York  City,  1913,  Appendix,  pp.  131-2,  134-5;  Some  Principles  and  Problems  of  Real  Estate  Valua- 
tion, by  A.  D.  Bernard,  (Baltimore,  Md.);  and  The  Somers  Unit  System  of  Realty  Valuation,  pub- 
lished by  the  Manufacturers'  Appraisal  Company,  Cleveland,  Ohio. 


10  IP  30  yo  fo  (,0  TO  ^o  <?o  joo  no  /%<>  /;<>/*« 


FIG.  1 


Where  a  lot  is  regular  in  shape  but  has  a  depth  greater  or  less 
than  the  normal  depth,  its  value  may  be  readily  determined  by 
ascertaining  from  the  table  what  percentage  a  lot  of  the  given 
depth  will  have  and  multiplying  by  this  number  the  value  of  a  lot 
of  normal  depth  having  the  same  width. 


TAXATION    IN    INDIANA 


147 


Where  lots  are  irregular  in  shape  they  may  be  reduced  to  nor- 
mal lots  or  be  broken  up  into  a  considerable  number  of  regular 
blocks  to  which  the  percentage  values  may  be  applied.  A  few 
of  the  methods'  used  are  mentioned  by  way  of  illustration. 

(1)     Where  the  side  lines  of  a  lot  are  not  equal. 

*soo 


FIG.  2 

New  York  method:  For  figure  2  ascertain  the  average  depth 
of  the  lot  by  adding  the  lengths  of  the  two  sides  and  dividing  by 
two  (100+80-^-2—90)  ;  next  ascertain  from  the  table  the  percentage 
for  a  lot  90  feet  deep ;  then  multiply  the  unit  value  by  this  per 
cent.  ($500x.94=$470)  ;  then  multiply  this  by  the  width  to  obtain 
the  total  value  ($470x50=423,500). 


148 


INDIANA   UNIVEKSITY 


(2)     Where  the  front  and  rear  sides  are  of  unequal  length. 


FIG.  3 


Somers  method :  In  figure  3  the  number  of  square  feet  in  each 
lot  is  the  same ;  but  their  values  differ  because  of  the  greater  front- 
age of  A.  The  value  of  the  entire  plot  (A  and  B)  equals  $100,000. 
Divide  the  lot  into  zones  10  feet  deep ;  ascertain  the  unit  for  each 
zone;  multiply  this  unit  value  by  a  number  representing  the  aver- 
age width,  that  is,  the  length  of  a  line  drawn  through  the  middle 
of  each  zone  parallel  to  the  street ;  sum  up  the  values  of  the  zones 
in  each  parcel  and  the  result  will  be  its  total  value.  The  value  of 
A  is  $53,059  and  of  B  $46,941.  The  value  of  the  two  lots  equals 
the  value  of  the  total  plot. 


TAXATION    IN    INDIANA 


149 


(3)     Where  the  lot  is  a  right-angled  triangle. 

&/00 


FIG.  4 

Lindsay-Bernard  method :  In  figure  4  to  find  the  value  of  A, 
ascertain  the  value  of  a  rectangle  with  one  half  the  depth  of  the 
triangle.  The  unit  value  of  a  rectangle  having  a  depth  of  60  feet 
is  67  per  cent,  of  the  normal  unit  value.  In  this  case  it  equals 
$67 ;  multiply  this  by  the  width  to  get  the  total  value  of  A  ($67x- 
50=$3,350).  To  find  the  value  of  B  subtract  the  value  of  A  from 
the  value  of  the  whole  plot  ( [$100x.938x50]  —  $3,350=$1,340). 


150  INDIANA    UNIVERSITY 

(4)     Where  the  lot  consists  of  numerous  irregularities. 


**IOO 


60 


__    _ 


US' 


Lindsay-Bernard  method:  In  figure  5,  bloek  the  lot  off  into 
a  number  of  squares;  ascertain  the  value  of  the  separate  blocks 
according  to  the  Lindsay-Bernard  rule  and  add  up  the  values  of 
the  separate  squares  or  parts  of  squares.  The  value  of  the  rect- 
angular lot  is  $4,750  and  that  of  the  irregular  lot  is  $4,173. 

Corner  lots  present  one  of  the  greatest  difficulties  even  when 
percentage  tables  are  available.  Where  two  streets  cross  the  lots 
located  upon  the  intersection  or  in  proximity  to  it  have  their  value 
greatly  enhanced  because  they  benefit  from  more  abundant  light, 
freer  ventilation,  greater  accessibility  and  better  adaptability  to 
the  erection  of  buildings.  It  is  necessary  to  determine  what  al- 
lowance should  be  made  for  this  corner  influence  and  how  far  it 
extends  from  the  intersection.  Sometimes  this  influence  is  deter- 
mined in  accordance  with  a  scale  of  percentage  values  previously 
adopted  as  the  result  of  careful  observation  of  the  selling  prices, 
rentals,  and  other  factors  of  value.  In  Newark  in  the  case  of 
corner  lots  in  the  business  districts  50  per  cent,  is  added  to  their 
values  calculated  as  inside  lots;  in  the  residential  section  25  per 


TAXATION   IN    INDIANA 


151 


cent,  is  added.  In  New  York  50  per  cent,  is  usually  added.  Cleve- 
land, St.  Louis,  and  several  other  cities  use  the  Somers  system. 
According  to  this  method  an  imaginary  corner  lot  100  feet  square 
is  constructed  at  the  corner  to  be  valued;  this  imaginary  lot  is 
subdivided  into  100  squares,  each  10  feet  square  and  numbered 
in  regular  order.  By  the  use  of  secret  formulae  Mr.  Somers  has 
computed  the  percentage  value  of  each  of  these  squares  under  all 
possible  variations.  Each  lot  is  diagrammed  upon  this  imaginary 
corner  lot  and  its  value  is  determined  by  adding  the  values  of 
all  the  squares  or  parts  of  squares  within  its  boundaries? 


o 
o 


o 

or 


a. 

o 

o 


UJ 

or 


10 !  20!  30!  40  i  soIeoFvoi  soi  qoi  looi 

j. j •.__.».._{ • ! L--.J----J 


I  I  I  I  I  I  l_ I J^ J 

8  [i8|28J38i48|58!68]7"8|88|q8i 

V f  17  !  27  i  37  [47  j  57  [ 67  j"77  j  87 1  q7  j 
— j. — | j j — - — [---4 — ! ! J 

!26i36!46!56!66!    ,,__ 


3  !!3J23|33|43!53| 


2  !I2I22!32!42!52!62!7 
— |...Jr...;....j....]....; 

I   !  II  !2I  !3(  !4I  !5I 


161 


I  181  iqi  ! 


STREET  UNIT  S200  PER  PROMT  FOOT 

FIG.  6.    THE  SOMERS  IMAGINARY  SQUARE 


Messrs.  Lindsay  and  Bernard,  rejecting  the  percentage  method 
and  the  mathematical  system  of  Mr.  Somers  have  proposed  the  fol- 
lowing rule : 

"First,  reduce  the  lot  to  its  logical  front  which  will  be  on  the 
highest  valued  street,  whether  the  lot  actually  faces  it  or  sides 
on  it. 

' '  Second,  find  its  value  as  an  inside  lot  on  the  main  street ; 


152  INDIANA    UNIVERSITY 

''Third,  find  its  value  as  an  inside  lot  on  the  side  street,  produc- 
ing it  on  the  Lindsay-Bernard  rule;  the  sum  will  be  the  minimum 
value  for  the  corner; 

' '  Fourth,  add  all  the  minor  factors  of  value  which  suggest  them- 
selves to  an  intelligent  appraiser."6 

This  rule  is  used  in  the  retail  business  and  office  building  dis- 
tricts. In  the  warehouse  and  factory  districts  but  one-half  the  value 
of  the  side  unit  is  added.  In  residence  districts  they  have  found 
that  corner  influence  generally  extends  only  20  feet  from  the  inter- 
section. 

Whatever  rule  for  fixing  unit  values  may  be  adopted  there  will 
still  remain  need  for  the  exercise  of  wise  judgment  and  honesty 
on  the  part  of  the  assessor.  For  location,  shape  and  size  do  not 
constitute  all  the  factors  of  value.  Transportation,  character  of 
business,  absorption  of  value,  plottage,  utility  and  social  atmos- 
phere must  be  given  proper  weight  by  the  assessors.  Notwith- 
standing the  necessity  for  this  personal  element  in  valuation,  the 
block  and  lot  maps,  land  value  maps  and  rules  of  computation 
furnish  a  most  valuable  system  by  means  of  which  the  assessors 
and  boards  of  review  may  use  their  judgment  more  intelligently. 
They  compel  an  analysis  of  the  factors  of  value.  They  break  up 
the  process  of  valuation  into  its  constituent  elements,  the  mental 
process  and  the  mathematical.  By  the  adoption  of  a  standard, 
that  is,  an  assumed  lot  of  definite  size  and  shape,  they  leave  the 
mind  of  the  assessor  free  to  consider  the  influence  of  location  and 
the  other  factors  of  value.  Such  tools  tend  to  bring  about  accuracy, 
uniformity,  and  standardization  in  appraisal.  They  eliminate 
secrecy  and  favoritism.  They  restore  to  the  taxpayer  a  sense 
of  assurance  that  others  are  not  enjoying  advantages  which  are 
denied  to  him. 

Wherever  such  systems  have  been  introduced  they  have  pro- 
duced satisfactory  results.  After  the  Somers  system  had  been 
adopted  in  Cleveland,  Mayor  Newton  D.  Baker  declared  that  it 
gave  the  most  practical  and  just  system  of  real  estate  assessment 
he  had  ever  seen.  Frederick  C.  Howe,  the  distinguished  writer 
on  municipal  questions,  made  the  following  statement:  "I  think 
the  word  'scientific'  may  now  be  applied  to  assessments  of  real 
property  for  purposes  of  taxation,  for  science,  as  I  understand  it, 
is  a  law  of  causation.  Given  certain  premises,  certain  results  must 
follow.  The  system  employed  in  Cleveland,  the  Somers  system, 

« A.  D.  Bernard,  Some  Principles  and  Problems  of  Real  Estate  Valuation,  pp.  51-52. 


TAXATION    IN   INDIANA  153 

is  a  law  of  causation  to  results. "  ' '  The  effect  of  that  is  two-fold. 
It  has  a  moral  effect  upon  the  official  because  he  works  all  the 
time  in  the  open;  and  in  addition  the  searchlight  of  publicity  is 
on  all  his  acts  after  his  work  is  completed,  for  it  all  goes  to  the  com- 
munity for  examination.  It  puts  the  citizens  in  the  best  possible 
way  to  complain  if  they  find  they  have  been  overvalued." 

I  have  tried  to  show  how  other  states  and  cities  have  brought 
about  a  more  accurate  and  a  more  equitable  appraisal  of  real  estate 
for  purposes  of  taxation  by  the  adoption  of  a  better  classification 
of  land  and  the  use  of  maps.  It  has  been  a  common  practice  in 
Indiana  to  denounce  the  assessor.  Is  it  entirely  just?  Have  we 
done  our  full  duty  by  furnishing  him  the  best  tools  for  his  work? 
Is  it  not  better  to  provide  him  the  most  modern  equipment  so  that 
his  assessment  may  be  accurate  in  the  first  place  rather  than  to 
try  to  correct  the  errors  and  inequalities  which  are  inevitable  under 
the  present?  Let  us  prescribe  for  him  the  best  methods  and  the 
best  facilities  and  then  hold  him  strictly  accountable. 

Modification  of  our  present  laws  in  accordance  with  these  sug- 
gestions may  be  made  without  waiting  for  an  amendment  of  the 
constitution.  They  are  simple  and  involve  no  radical  change  in 
our  theory  of  taxation.  (Applause.) 

MR.  DAN  M.  LINK:  Mr.  Chairman,  may'I  say  a  word  in  con- 
nection with  this  paper? 

CHAIRMAN  REMY:     The  Chair  recognizes  Mr.  Link. 

MR.  DAN  M.  LINK  :  Mr.  Chairman — I  presume  there  is  no  other 
man,  at  least  no  other  man  in  the  State  of  Indiana,  who  could  have 
prepared  this  paper  that  we  have  just  listened  to.  The  science  of 
the  taxation  of  real  estate  is  a  branch  of  taxation  in  itself  which 
is  given  very  little  attention  by  students  of  taxation  because  it  is 
hard  to  understand,  and  the  practical  difficulties  in  the  way  of 
assessing  real  estate  in  the  State  of  Indiana,  with  the  system 
now  provided  by  our  laws,  have  been  amply  illustrated  by  the 
paper  just  read  by  Professor  Rawles;  and  it  put  me  in  mind  of 
the  observations  that  have  been  made  blaming  the  poor  assessor 
for  the  poor  assessment  of  the  real  estate,  when  he  has  had  no 
appliances  at  hand,  or  paraphernalia,  to  use  to  aid  him  in  arriving 
at  a  just  appraisement,  and  the  difficulty  with  which  the  State 
Board  has  to  contend  in  trying  to  secure  a  uniform  valuation  of 
real  estate. 


154  INDIANA    UNIVERSITY 

Now  Lake  County,  for  instance — they  always  point  to  Lake 
County,  because  it  furnishes  abundant  illustrations  of  most  any 
sort  of  bad  thing  in  taxation  you  may  call  to  mind — the  growth 
there  has  been  so  rapid  that  the  local  assessor,  who  gets  five  hun- 
dred dollars  a  year  for  assessing  forty  million  dollars  of  property 
in  that  county,  cannot  keep  track  of  the  new  lots  and  new  build- 
ings put  on  the  lots.  It  has  happened  that  there  would  be  whole 
additions  with  a  large  number  of  lots  that  would  not  be  on  the  tax 
duplicate  at  all ;  and  it  has  happened  that  very  large  and  expensive 
buildings  have  been  built  for  business  and  residence  purposes 
which  were  not  noticed  by  the  assessor,  and  ran  along  for  years 
without  being  assessed;  and  that  condition  was  complained  of  to 
him,  and  he  was  the  one  who  brought  it  to  the  notice  of  the  Tax 
Board.  He  said:  "I  know  that  condition  exists,  but  I  haven't 
in  my  office  the  means  to  keep  up  with  these  things.  I  have  a 
territory  that  reaches  for  twelve  miles  around  a  given  point,  and 
I  haven't  the  scratch  of  a  pen,  no  records,  and  even  with  my  mag- 
nificent salary  of  five  hundred  dollars  a  year  I  am  unable  to  employ 
engineers  and  make  drafts  aifd  records  and  put  myself  in  a  position 
to  make  a  proper  assessment  in  my  district." 

We  made  numerous  visits  to  Gary,  and  we  decided  that  the 
only  way  to  get  a  decent  assessment  there  was  to  give  that  assessor 
a  set  of  maps  of  the  c*ity  of  Gary.  There  are  something  like  thirty- 
two  thousand  lots,  and  when  we  went  over  it,  after  he  reported  it 
to  us,  he  was  just  simply  astounded  himself  to  find  out  how  many 
lots  and  how  many  buildings  had  never  been  assessed  at  all. 

CHAIRMAN  BFIMY:  I  believe  that  the  gentleman  who  was 
selected  to  lead  the  discussion  this  morning,  Mr.  Stoll,  is  not  present. 
Am  I  right  about  that  ?  He  does  not  seem  to  be  here.  Are  there 
others  who  desire  to  discuss  these  questions?  We  have  fifteen  min- 
utes yet,  if  my  time  is  correct,  until  twelve  o'clock;  and  under 
the  rule  that  will  give  three  men  an  opportunity  to  talk  for  five 
minutes  each. 

MR.  J.  W.  MCCARDLE  :  Mr.  President  and  gentlemen — As  a  citi- 
zen and  taxpayer  of  Indiana  I  am  here  by  no  invitation,  but  I 
know  that  I  am  welcome.  That  has  already  been  demonstrated 
by  the  gentlemen  who  have  this  conference  in  charge,  especially 
by  my  distinguished  friend  who  sits  here  on  my  right.  I  do  not 
represent  anybody  here  today  but  myself  as  a  taxpayer,  but  I  am 
vitally  interested  in  the  subject  of  taxation,  not  only  in  Indiana 


TAXATION   IN   INDIANA  155 

but  throughout  the  country,  and  I  have  been  delighted  to  hear 
these  papers  read  by  distinguished  men  from  other  states  who  have 
given  the  best  part  of  their  life  to  the  study  of  taxation.  I  have 
been  interested,  ladies  and  gentlemen,  in  the  study  of  taxation, 
and  I  came  down  here  today  to  hear  these  discussions;  and  Mr. 
Chairman,  as  all  Irishmen  are  not  alike,  I  am  inclined  to  have 
decided  opinions  of  my  own.  I  never  found  out  that  those  decided . 
opinions  didn't  amount  to  very  much  until  I  became  a  member 
of  the  State  Tax  Board  of  Indiana.  I  found  out  then  that  there 
were  four  other  good,  strong,  intelligent,  conscientious  men  sitting 
on  that  Board  besides  myself  who  had  opinions,  and  who  were 
able  to  express  them.  Therefore  I  want  to  criticise  practically 
every  man  who  has  spoken  here  except  this  gentleman  on  my  right. 
I  have  no  criticism  to  offer  against  the  Professor  on  his  paper.  It 
is  a  valuable  paper,  full  of  good  things.  But  the  criticism  espe- 
cially that  I  am  going  to  offer  is  against  that  distinguished  citizen 
who  is  not  here  today,  our  friend  Mr.  Jacob  P.  Dunn.  He  is  the 
man  that  helped  write  the  tax  law  of  Indiana,  and  I  want  to  say 
to  you  gentlemen  that  he  could  not  have  written  a  better  law  if 
he  had  worked  a  hundred  years  on  it.  But  he  didn't  have  the 
courage  yesterday  to  defend  the  Indiana  tax  law.  I  am  confident 
enough,  Mr.  Chairman,  and  decided  enough  in  my  own  opinion, 
to  stand  up  in  your  presence  and  defend  the  Indiana  tax  law. 

Notwithstanding  we  have  heard  these  many  valuable  papers 
from  distinguished  men  from  various  states  dealing  with  the  differ- 
ent methods  of  taxation,  there  has  not  been  a  single  speaker  here 
that  has  touched  the  root  of  this  evil.  Not  one.  You  have  pre- 
pared plans  and  methods  and  arranged  for  the  levying  and  col- 
lection of  taxes,  haven 't  you  ?  But  you  haven 't  said  a  single  word 
about  spending  them,  have  you  ?  There  is  where  the  trouble  is,  my 
friends.  It  is  in  spending  this  money  after  you  have  collected  it. 
It  is  the  trouble  with  all  municipalities.  I  am  not  going  to  pick 
out  any  one.  It  is  the  trouble  at  Indianapolis  as  well  as  at  Bloom- 
ington.  The  people  don't  get  the  value  of  their  money.  That  is 
where  the  trouble  is.  If  you  talk  about  economy  practice  it. 
I  want  to  say  to  this  association  that  has  been  arranged  for,  that 
you  have  a  moral  right,  and  I  hope  that  you  will  exercise  it.  Let 
the  word  go  out  from  this  great  and  magnificent  institution  that 
you  are  going  to  suggest,  that  you  are  going  to  advise,  that  you  are 
going  to  plead  with  all  municipalities  to  spend  this  money  as  it 
should  be  spent  and  get  value  received.  That  is  the  question  that 


156  INDIANA    UNIVERSITY 

confronts  the  American  people  today.  The  ordinary  taxpayer  goes 
into  the  Treasurer's  office  and  pays  his  tax.  He  says  to  the 
Treasurer,  "Why,  my  taxes  are  higher  this  year."  "Yes"  the 
Treasurer  says,  ' '  they  are  higher. "  "  Well,  why  ? ' '  The  ordinary 
taxpayer  is  supposed  to  be  paying  attention  to  his  usual  vocation, 
aii(J  he  is  not  paying  any  attention  to  what  the  tax  collector  is 
doing,  or  the  assessor,  until  he  comes  to  the  bar  of  justice  and  lays 
down  his  money;  and  then  he  finds  out  that  his  taxes  are  higher. 

I  was  very  much  interested  in  what  the  distinguished  gentle- 
man from  New  York  said  last  evening.  I  talked  with  him.  He 
impressed  me  very  much.  I  was  defending  the  Indiana  tax  law, 
and  while  I  haven't  time  to  go  into  details  I  don't  think  you  could 
convince  me  that  the  Indiana  tax  law  is  wrong.  There  are  a  few 
things  in  it,  of  course,  that  ought  to  be  corrected.  There  never 
was  a  law  passed  in  Indiana,  nor  in  any  other  commonwealth 
throughout  this  great  and  glorious  Union  of  ours,  that  didn't  have 
some  defect.  We  know  that.  And  he  spoke  about  it,  and  Mr. 
Link  spoke  about  it.  Mr.  Link  knows  because  he  is  a  member  of 
the  State  Tax  Board  now.  Everybody  says  it  is  the  township  as- 
sessor. Poor  fellow;  he  is  not  paid  very  much,  and  he  is  indif- 
ferent to  conditions  when  he  approaches  the  taxpayer,  and  there 
is  where  the  trouble  is  they  say.  Well,  perhaps  it  is  largely  so, 
but  you  correct  just  a  few  little  things  in  the  Indiana  tax  law 
and  you  have  got  the  best  tax  law  there  is  in  this  country  today. 
That  is  what  you  have  got.  It  is  a  general  property  tax,  and 
taxes  everything,  assesses  everything.  It  doesn  't  except  a  man  be- 
cause he  has  made  a  little  money.  It  doesn't  tax  industry,  but  it 
taxes  everything  else.  And  that  is  right.  If  you  are  going  to 
make  a  tax,  if  you  are  going  to  raise  money  tax  everything.  Apply 
the  law,  and  put  it  in  execution,  and  you  will  get  good  results. 

Now  the  gentleman  from  New  York,  I  was  telling  him  about 
the  nice  features  of  the  Indiana  tax  law,  and  he  said,  as  Mr.  Dunn 
said:  "Why,"  he  says,  "the  poor  widow;  she  hasn't  got  any 
show.  You  tax  her  to  death."  Now  there  is  some  truth  in  what 
has  been  said  about  taxing  the  poor  widow.  Also  about  taxing 
the  poor  man  who  has  a  little  home.  There  is  some  truth  in  that. 
That  is  because  the  township  assessor  can  see  that  little  house  and 
see  that  little  lot.  He  can  see  just  what  it  is.  Nothing  is  covered 
up.  The  man  is  off  at  work,  and  the  woman  is  at  home,  and  she 
says,  "Here  is  my  house,  my  home,"  and  they  assess  it.  It  is 
not  so  with  the  rich  man.  But  that  is  the  fault  of  the  assessors, 
and  it  is  not  the  fault  of  the  law. 


TAXATION    IN    INDIANA  157 

But  I  said  to  my  New  York  friend,  "I  will  tell  you  about  the 
widow;"  and,  men,  I  want  to  refer  to  an  incident  that  occurred 
when  I  was  a  member  of  the  tax  board,  in  Clay  county,  in  Brazil. 
I  went  down  there  to  attend  a  meeting  of  the  County  Board  of 
Review.  When  I  went  in  they  were  busy.  They  met  in  the 
basement  of  the  courthouse,  and  there  was  an  old  woman  came 
down  there  to  present  a  matter  before  the  County  Board.  I  think 
she  said  she  was  sixty-two  years  old.  As  soon  as  she  came  in  the 
chairman  said  to  her,  ' '  My  lady  friend,  what  can  we  do  for  you  ? ' ' 
He  stopped  the  proceedings  there  right  away  to  hear  her  case. 
"Why,"  she  says  "you  have  assessed  my  property  too  high."  He 
says,  ' '  Is  that  so  ? "  "  Yes, ' '  she  says,  ' '  I  wash  for  a  living  four 
days  in  the  week.  I  have  a  brother  that  met  with  an  accident  that 
I  am  taking  care  of,  and  you  have  assessed  my  property  too  high. 
It  is  all  I  can  do  to  live."  Well,  that  county  assessor,  grand  old 
fellow — and  we  have  a  good  lot  of  them  in  Indiana — he  says,  ' '  Now 
madam  about  what  do  you  think  that  property  ought  to  be  assessed 
at?"  She  told  them  what  it  was  assessed  at  the  last  time.  He 
says,  "All  right;  we  will  see  what  we  can  do  for  you;"  and  in 
thirty  minutes  after  that  the  poor  old  woman  left  that  room,  her 
property  was  assessed  at  just  exactly  what  she  said  it  ought  to  be 
assessed  at. 

I  want  to  convey  this  idea  to  you  men  who  do  not  live  in 
Indiana,  that  the  poorest  woman  or  the  poorest  man  can  appeal 
his  or  her  case  to  the  County  Board  of  Review  without  any  expense. 
We  have  some  county  assessors  here  today,  Sullivan  of  Johnson 
County,  and  Becker  of  Hamilton  County,  and  I  say  to  you  if  you 
appear  before  those  men,  rich  or  poor,  high  or  low,  you  will  get 
justice.  They  will  treat  you  right.  They  will  assess  your  property 
right ;  and  if  you  are  not  satisfied  with  their  appraisement  you  can 
appeal  it  to  the  State  Tax  Board  that  Mr.  Dunn  has  practically 
condemned.  The  State  Tax:  Board  of  Indiana  is  absolutely  all 
right.  They  are  men  of  character,  and  men  of  intelligence,  and 
you  take  your  case  before  those  men  and  I  will  assure  you  and 
guarantee  you  fair  and  equal  justice.  I  do  not  want  any  man 
who  lives  outside  the  State  of  Indiana  to  go  away  from  here 
with  the  idea  that  the  Indiana  tax  law  is  so  oppressive  that  injus- 
tice may  be  done  you  and  you  cannot  get  a  hearing.  You  can  be 
heard. 

It  fell  to  me  to  say  that  for  Indiana;  and  I  say  to  you,  if  you 
think  there  is  anything  wrong  send  it  in  to  Mr.  Link.  If  you 


158  INDIANA    UNIVERSITY 

have  any  trouble  I  say  to  you  take  it  to  Mr.  Link,  and  I  say  that 
he  will  give  you  fair  and  courteous  treatment  as  well  as  justice. 

Now,  Mr.  Chairman,  if  I  am  exceeding  my  time  you  must  call 
me  down. 

CHAIRMAN  REMY:  You  have  used  ten  minutes.  It  is  now 
five  minutes  to  twelve.  If  nobody  else  desires  to  talk,  and  the  chair 
hears  no  objection,  you  may  go  on.  The  rule  is  five  minute  speeches 
for  discussion. 

MR.  McCARDLE:  If  you  say  so  I  will  quit.  (Cries  of  "Go 
on, "  ' '  Go  on. ")  "Well,  then,  with  your  consent  I  will  occupy  just  a 
few  moments  more.  I  want  to  talk  to  you  about  the  Tax  Board. 
Mr.  Dunn  referred  to  what  these  gentlemen  had  done  in  assessing 
railroad  property.  Now  there  is  another  problem.  Mr.  Link  went 
over  that  story  yesterday,  and  he  explained  it  just  about  as  well 
as  any  man  here  could  possibly  explain  it.  I  am  not  a  railroad 
man,  but  let  me  tell  you  something  about  railroad  property,  and 
I  do  not  own  a  share  of  stock  in  any  railroad  corporation,  nor  in 
any  other  corporation ;  I  am  just  one  of  these  little  business  fellows 
of  Indiana,  but  I  pay  my  taxes  in  three  counties.  Fortunate,  ain  't 
I?  Well,  Mr.  Dunn  criticised  the  action  of  the  State  Board  of 
Tax  Commissioners.  Now  I  was  on  that  Board,  and  I  want  to  say 
to  you  gentlemen  right  here,  without  any  discrimination,  that  the 
railroads  of  Indiana  pay  more  taxes  than  any  other  class  of  cor- 
poration property.  That's  what  they  do.  And  I  ask  you  gentle- 
men in  all  fairness,  is  it  right  to  single  out  the  railroads  and  tax 
them  more  than  anybody  else?  Is  that  right?  Absolutely  no. 
And  I  am  proud  of  the  professor  from  Wabash  College,  Mr. 
Leonard.  I  have  never  met  you,  Mr.  Leonard,  but  I  want  to  com- 
pliment you  on  your  talk  last  night.  You  criticised  the  men 
from  Michigan.  Why,  their  taxes  up  there  are  almost  confiscatory 
of  property ;  and  it  is  wrong.  Absolutely  wrong.  All  the  Ameri- 
can people  want  is  a  square  deal.  The  railroads  are  not  asking 
anything  else.  They  have  done  more  to  civilize  this  country  than 
any  other  one  thing.  They  pushed  clear  across  to  the  Golden  West 
and  opened  up  the  greatest  opportunity  and  the  greatest  country 
under  the  sun.  That  is  what  the  railroads  have  done — and  I 
don't  own  any  property  in  railroads  and  I  don't  want  to,  and  I 
never  rode  on  a  railroad  pass  in  my  life,  and  am  not  representing 
any  railroad.  All  I  say  is  to  give  the  railroads  a  square  deal. 
They  do  not  ask  anything  else. 


TAXATION   IN   INDIANA  159 

I  made  a  comparison  of  some  figures,  Mr.  Chairman,  oil  the 
banks  of  Indianapolis.  I  want  to  say  to  you  that  I  am  not  a 
banker,  unfortunately.  I  wish,  I  was.  But  I  don't  own  a  share 
of  stock  in  a  bank.  I  wish  I  did.  But  I  had  occasion  to  call  up 
Mr.  John  E.  Reed,  who  was  formerly  Deputy  Atfditor  of  State, 
and  I  said,  "John,  can  you  tell  me  how  the  banks  are  assessed, 
or  what  they  report  for  their  assessment  to  the  County  Board  of 
Review?"  He  says,  "Yes,  I  can;"  and  I  want  to  tell  you  what 
the  banks  of  Indiana  pay  in  taxes,  and  that  is  to  be  considered, 
Mr.  Chairman.  There  is  a  sentiment  in  the  minds  of  the  people, 
especially  with  regard  to  railroads  and  banks,  that  they  do  not 
pay  their  share  of  the  taxes.  Now  listen  to  me  for  just  a  moment, 
for  I  am  going  home,  Mr.  Chairman,  as  soon  as  this  session  is  over, 
and  will  not  bother  you  any  more.  The  book  value  of  the  Fletcher 
American  National  Bank  of  Indianapolis  was  one  hundred  and 
fifty-two,  as  they  reported  to  the  County  Board  of  Review.  As- 
sessed at  seventy  per  cent,  for  equalization  purposes,  it  amounts 
to  $106.40.  They  pay  ten  per  cent,  dividends  during  the  year. 
Now  the  tax  rate  is  $2.36,  and  you  add  that  on,  which  will 
make  $12.36,  and  the  rate  of  taxation  would  be  $2.51  on  the  basis 
of  $100.00.  That  would  leave  to  the  stockholder  $9.85,  or  seventy- 
five  per  cent,  of  the  net  profit.  Twenty-five  per  cent,  of  net  profit 
is  paid  in  taxes  by  the  Fletcher  American  National  Bank  of  Indian- 
apolis. Now  there  is  another  bank  there — and  this  bank  pays  8 
per  cent,  dividends.  I  have  them  all  but  I  will  only  give  you  one 
other — the  Merchants  National  Bank.  They  have  an  assessment 
on  the  basis  of  $205.00  per  share.  At  seventy  per  cent,  of  that 
for  equalization  purposes,  if  you  figure  at  $2.36,  the  tax  rate  in 
Marion  County,  you  will  see  gentlemen  that  they  pay  forty-eight 
per  cent,  of  the  net  profit  on  a  share  of  bank  stock  in  taxes.  That 
is  what  they  do  in  the  City  of  Indianapolis. 

Now,  Mr.  Chairman,  I  thank  these  gentlemen  for  their  kind 
attention,  and  the  consideration  they  have  given  me  in  this  matter, 
and  I  hope  and  trust  that  when  this  association  is  formed,  when 
the  organization  is  completed,  that  you  will  go  out  and  advise — 
you  cannot  compel — but  advise  and  plead  with  the  people  of  the 
State  of  Indiana,  and  the  people  of  the  other  states,  wherever  you 
may  go,  and  tell  them  how  to  spend  this  money  as  well  as  to  collect 
it.  (Applause.) 


160  INDIANA    UNIVERSITY 

CHAIRMAN  REMY:  It  is  now  twelve  o'clock,  which  is  the  hour 
of  adjournment.  Is  there  anything  further  to  come  before  the 
conference  ? 

MR.  JAMES  W.  MORRISON,  of  Frankfort:  Mr.  President,  my 
experience  in  taxation  is  limited  to  that  of  a  county  assessor,  I 
wish  to  state  that  the  reason  the  people  of  the  State  of  Indiana 
object  to  a  constitutional  convention  or  to  an  amendment  of  the 
constitution  grows  out  of  the  fact  that  our  people,  as  a  people, 
believe  in  the  tax  law  of  Indiana.  They  believe  it  to  be  fair  and 
just,  and  that  the  decisions  of  the  Supreme  Court  and  the  United 
States  Court  have  practically  settled  all  questions  that  may  arise 
in  connection  with  it,  and  they  are  afraid  of  having  those  questions 
opened  up  again  to  be  experimented  with.  It  is  proper  that  the 
County  Commissioners  should  furnish  county  and  township  as- 
sessors with  all  the  data  and  information  to  enable  them  to  arrive 
at  the  best  possible  valuation  or  appraisement.  There  is  no  ques- 
tion but  what  our  law  works  properly,  and  that  a  great  deal  de- 
pends on  the  county  assessor ;  and  I  do  not  believe  you  will  ever 
get  better  men  than  those  selected  by  the  people  locally,  in  their 
respective  tax  districts.  (Applause.) 

CHAIRMAN  REMY  :     Dr.  Rawles  has  an  announcement  to  make. 

DR.  WILLIAM  A.  RAWLES  :  Mr.  Chairman,  I  desire  to  announce 
that  the  faculty  is  extending  a  luncheon  today  at  noon  in  the  room 
below,  which  is  complimentary  to  the  members  of  the  conference, 
and  I  hope  you  will  all  stop  there.  If  there  is  anyone  who  has  not 
yet  received  a  ticket  he  will  please  stop  at  the  door  and  get  one. 

MR.  DAN  M.  LINK:  Mr.  Chairman,  in  view  of  the  fact  that 
there  is  a  great  amount  of  work  to  be  done  after  luncheon,  and 
that  all  of  those  who  are  in  attendance  upon  the  conference  from 
out  of  town  desire  to  take  the  four  o'clock  train,  I  move  that  the 
afternoon  session  begin  promptly  at  1 :30,  instead  of  2 :00  p.m., 
as  indicated  on  the  program. 

CHAIRMAN  REMY:  The  Chair  suggests  that  that  be  taken  by 
consent,  if  there  is  no  objection.  I  think  that  is  a  very  good  sug- 
gestion in  view  of  the  fact  that  we  are  going  to  get  our  lunch 
here.  Surely  in  an  hour  and  a  half  we  can  be  ready  to  resume 
our  work  in  this  room.  We  have  two  excellent  papers  for  this 
afternoon,  one  by  Mr.  John  A.  Lapp,  and  one  by  Tax  Commis- 
sioner Wolcott;  and  I  ask  that  every  member  of  the  conference 


TAXATION    IN    INDIANA  161 

be  in  his  seat  promptly  at  one  thirty,  so  that  we  may  be  able  to 
get  through.  Most  of  the  people  who  are  here  from  a  distance 
expect  to  leave  on  the  4:10  train,  and  I  think  the  suggestion  of 
Tax  Commissioner  Link  that  we  meet  a  half  hour  earlier  is  timely. 
If  there  is  no  objection  his  motion  will  be  taken  by  consent.  If 
there  is  nothing  further  to  come  before  the  conference  this  morn 
ing  we  will  now  stand  adjourned  until  1 :30  .p.m. 

FRIDAY,  FEBRUARY  6— AFTERNOON  SESSION 

The  Conference  met  pursuant  to  adjournment  at  1:30  o'clock 
p.m.,  and  was  called  to  order  by  Dr.  William  A.  Rawles. 

DR.  -RAWLES  :  Gentlemen  Of  the  Conference,  I  have  the  pleasure 
of  introducing  to  you,  as  the  Presiding  Officer  for  this  afternoon. 
Mr.  John  F.  White  of  Indianapolis. 

CHAIRMAN  WHITE  :  Gentlemen  of  the  Conference,  I  don't  know 
whether  this  has  been  with  the  purpose  of  saving  the  old  wine  for 
the  last  of  the  feast  or  not,  but  inasmuch  as  we  have  simply  an 
hour  or  two  for  this  afternoon's  session  I  will  at  least  be  brief. 
I  shall  not  attempt  to  make  any  address,  except  to  say  that  this  con- 
vention has  been  one  of  the  best  that  I  have  ever  attended,  and 
we  have  had  a  most  complete  program  of  splendid  material.  I 
think  out  of  this  conference  ought  "to  come  a  great  good  to  Indiana. 
It  ought  at  least  to  stimulate  interest  in  taxation  matters,  and  get  a 
better  system,  or  if  not  a  better  system  of  taxation,  at  least  a  better 
administration  of  taxation  methods. 

For  this  afternoon,  inasmuch  as  a  number  of  persons  desire 
to  get  away  early,  I  will  start  with  the  first  paper  on  the  program, 
and  I  feel  assured  we  will  have  another  treat  on  the  part  of  Mr. 
John  A.  Lapp,  Director  of  Bureau  of  Legislative -and-  Adminis- 
trative Information  of  Indiana.  I  now  take  great  pleasure  in 
introducing  to  you  Mr.  Lapp  who  will  address  you. 

THE  NEED  OP  A  SPECIAL  TAX  COMMISSION 

MR.  LAPP:  Gentlemen  of  the  Conference — I  had  prepared  a 
very  elaborate  address  to  set  forth  the  needs  for  a  special  investi- 
gation of  the  subject  of  taxation  in  Indiana,  but  in  view  of  some 
statements  that  have  been  made  here  I  have  discovered  that  there 
is  no  need  for  any  special  investigation.  In  fact,  there  is  no  need 
for  any  change  in  taxation,  because  we  have  had  it  stated  that 

11—848 


162  INDIANA   UNIVERSITY 

we  have  a  perfectly  adequate  system  of  taxation,  just  in  every 
particular,  needing  only  a  few  minor  amendments  here  and  there. 

I  stopped  the  preparation,  for  a  while,  of  the  further  speech 
that  I  was  going  to  make,  but  after  thinking  it  over  I  am  somewhat 
convinced  that  what  we  have  been  told  during  the  conference, 
what  people  are  saying  all  over  the  state,  what  experts  all  over 
the  country  are  saying  concerning  the  inadequacy  of  our  tax  system, 
cannot  be  false.  I  have  come  to  the  conclusion  that  we  do  need 
a  better  system  of  taxation  in  Indiana. 

I  had  also  thought  that  we  needed  a  change  in  the  constitution 
of  Indiana  in  order  that  we  might  among  other  things,  have 
a  proper  system  of  taxation,  but  we  have  had  it  stated  at  this 
conference  that  the  constitution  of  Jndiana  is  perfectly  all  right, 
and  we  have  no  need  for  a  constitutional  convention  because  every- 
thing is  in  proper  form  now,  and  the  men  of  today  are  not  capable 
of  handling  a  constitutional  convention. 

But  after  thinking  that  over  I  am  convinced  that  we  still  need 
a  constitutional  convention  for  the  purpose  of  fixing  up  the  basic 
law  so  that  we  may  have  an  adequate  system  of  taxation  in  Indiana 
as  one  of  its  fruits. 

Now,  of  course  the  system  of  taxation  was  all  right  at  one  time, 
but  it  is  our  experience  that  in  any  field  of  social  economics,  unless 
we  make  continual  adjustments  from  year  to  year,  we  shall  soon 
have  a  system  lagging  behind  the  times;  that  we  shall  have  great 
gaps  in  which  the  law  does  not  properly  and  adequately  perform 
its  function.  Some  people  say  we  ought  not  to  have  a, session  of 
the  legislature  excepting  once  in  ten  years.  I  think  that  is  abso- 
lutely absurd,  for  if  we  didn't  have  a  session  of  the  legislature 
every  two  years  we  would  have  this  great  gap  that  I  am  speaking 
about  between  actual  conditions  and  the  state  of  the  law.  So  I 
am  convinced  now  that  we  do  need  an  investigation  of  the  subject 
of  taxation  in  Indiana. 

The  discussions  of  this  conference  have  disclosed  the  perplexities 
of  the  problem  with  which  we  are  dealing.  There  is  perhaps  no 
problem  which  involves  more  difficulties  in  the  formulation  and 
administration  of  a  proper  system  than  that  of  taxation.  There 
is  no  problem  which  to  an  outside  observer  seems  to  be  farther 
from  an  adequate  solution  in  this  state  and  in  other  states.  And 
yet  the  experience  of  the  states  of  this  country  would  point  the 
way  to  the  solution  of  many  of  the  difficulties  which  confront  us. 

It  is  apparent,  and  will  be  admitted  everywhere,  that  there  is 


TAXATION   IN   INDIANA  163 

no  state  in  the  Union  that  has  a  perfect  system  of  taxation,  at 
least  if  we  judge  by  the  criticisms  which  people  are  making  of 
different  systems  of  taxation,  both  in  the  home  state  and  outside. 
And  yet  many  states  have  solved  single  problems,  and  have  pieces 
of  a  fairly  adequate  system  of  taxation.  For  instance,  New  York 
has  some  successful  applications  in  taxation.  Wisconsin,  we  have 
heard  this  morning,  has  some  very  successful  features  of  taxation. 
California  has  worked  out  some  things  in  the  matter  of  classification 
of  property  that  work  very  well.  Michigan  has  some  good  things ; 
and  so  on  through  the  country,  many  states  have  reached  a  working 
basis  on  certain  phases  of  taxation.  What  we  need  now  for  this 
State,  and  for  all  states,  is  to  gather  up  these  successful  experiences 
in  different  states  and  try  if  we  can  to  weld  them  together  into 
some  adequate  system. 

One  thing  is  evident,  that  is,  that  we  cannot  settle  this  problem 
by  piecemeal.  It  must  be  taken  in  its  complete  aspects.  It  must 
be  solved  as  a  unit  in  order  that  the  system  shall  be  comprehensive 
and  at  the  same  time  honest  and  fair.  If  we  want  to  get  that  sort 
of  a  system,  we  cannot  depend  upon  individual  initiative,  either 
of  private  citizens  or  of  public  officials.  Nor  can  we  depend  upon 
the  unaided  efforts  of  the  General  Assembly.  Each  man,  whether 
he  be  a  private  citizen  or  an  office  holder,  has  many  more  problems 
to  consider  and  can  give  only  a  minimum  of  time  to  the  thought 
and  effort  which  are  necessary  to  work  out  the  matter  to  its  final 
analysis.  We  must  depend,  therefore,  upon  some  organization, 
or  somebody  working  exclusively  and  efficiently  to  the  end  of  col- 
lecting, analyzing,  and  setting  forth  the  main  facts  which  must 
underlie  the  solution  of  this  problem.  The  work  requires  long 
study.  It  requires  expert  assistance.  It  requires  the  opinions 
of  men  in  every  walk  of  life,  and  it  requires  that  all  the  facts  shall 
be  gathered  together  and  set. forth  in  such  manner  that  out  of 
the  facts  may  come  a  logical  and  complete  system  of  taxation. 

For  the  reasons  stated,  it  is  plain  that  if  we  are  to  get  at  the 
bottom  of  this  matter,  we  shall  need  a  special  investigation  repre- 
senting all  classes  of  people  who  are  concerned 'with  this  problem, 
who  shall  be  appointed  for  reasons  of  knowledge,  experience  and 
interest  in  working  out  from  the  accumulated  experience  of  this 
and  other  states  an  adequate  and  fair  system  of  taxation  for  the 
State  of  Indiana. 

Such  an  investigation  must  be 'thorough,  or  else  it  might  better 
not  be  had.  A  partial  solution  of  the  problem  is  not  what  we 


164  INDIANA    UNIVERSITY 

are  after.  Nothing  short  of  a  full  survey  and  a  practical  and 
complete  working  plan  of  taxation  will  satisfy  the  state  perma- 
nently. We  can,  to  be  sure,  go  on  adding  piecemeal  to  the  present 
cumbrous  system  with  its  inequalities,  its  concealment  of  property, 
its  promotion  of  perjury,  and  its  general  unfairness.  It  is  not 
mere  change  that  is  needed.  We  do  not  want  to  substitute  some 
different  system  of  taxation  just  merely  because  it  is  different. 
We  want,  rather,  to  comprehend  and  solve  the  whole  problem,  but, 
most  of  all,  we  want  to  make  the  people  of  the  state  comprehend 
it.  The  best  system  cannot  be  adopted  nor  will  it  work,  unless  the 
people  have  been  educated  to  its  purposes,  and  are  willing  to 
educate  themselves  in  its  administration.  This  investigation  must 
be  fairly  representative  of  men  of  all  the  classes  that  are  interested. 
Such  a  commission,  I  should  think,  should  be  composed  of  a  rep- 
resentative of  the  tax  paying  class,  and  a  representative  of  the 
laboring  class — someone  has  suggested  that  laboring  men  and  men 
who  do  not  pay  taxes  directly  are  not  vitally  interested.  Of  course 
we  know  that  that  is  absurd,  because  in  the  last  analysis  every 
man,  whether  he  pays  his  tax  directly  to  the  taxgatherer,  or  whether 
he  pays  it  to  a  man  who  pays  it  t6  the  taxgatherer,  is  interested 
in  the  subject  of  taxation. 

We  ought  to  have  a  representative  from  the  business  interests 
of  the  state,  and  a  representative  of  agriculture  and  above  all  we 
ought  to  have  a  representative  from  the  State  Tax  Board  itself, 
which  is  charged  with  the  duty  of  administering  the  law,  and  is 
familiar  with  all  the  details  and  defects  in  the  actual  administra- 
tion of  the  law  of  the  state. 

We  need  also  men  who  will  look  at  the  thing  from  a  large  stand- 
point, men  who  will  look  at  it  from  the  standpoint  of  the  professor 
of  political  economy,  if  you  will,  who  have  no  particular  interest 
except  the  welfare  of  the  state  in  their  minds. 

Such  a  body  as  that — and  I  just  merely  suggest  an  outline — 
could  investigate  the  subject  for  Indiana.  We  could  find  out  very 
quickly  whether  or  not  it  is  true  that  we  do  not  need  any  change 
in  taxation  in  Indiana.  We  could  find  out  very  rapidly,  too,  what 
changes  are  needed ;  and  when  we  get  those  facts  together  we  can 
present  them  in  such  a  manner  to  the  state  that  the  people  of  the 
state  will  understand  them ;  and  that  I  take  it  is  vitally  necessary. 

I  have  seen  a  great  many  investigations  in  this  state  and  in 
other  states  which  surveyed  the -facts  in  certain  fields.  After  the 
facts  were  gotten  they  were  quietly  concealed  in  ponderous  volumes 


TAXATION    IN   INDIANA  165 

or  in  the  offices  of  the  Capitol,  or  in  some  other  place.  The  peo- 
ple did  not  get  hold  of  the  facts.  They  did  not  have  a  chance  to 
study  them.  The  results  of  many  investigations  of  that  sort  have 
been  pigeonholed,  and  the  results  have  not  reached  the  people. 
We  must  take  everybody  into  our  confidence.  "We  must  try  to 
educate  everybody  on  this  subject;  and  when  we  have  done  that, 
when  we  have  worked  this  problem  out,  I  dare  say  we  will  come  to 
the  conclusion — I  haven't  any  doubt  in  the  world  that  this  com- 
mission will  come  to  the  conclusion,  if  it  should  be  appointed — 
that  we  ought  to  have  a  comprehensive  change  in  the  tax  system 
in  Indiana;  that  no  matter  how  good  the  system  of  taxation  may 
have  been  a  few  years  ago,  that  it  is  not  adequate  at  the  present 
time,  and  it  is  not  adequate  for  the  rapidly  changing  future. 

We  must  look,  in  this  problem,  not  merely  to  the  present,  but 
we  must  formulate  such  a  system  of  taxation  that  it  will  adjust 
itself,  or  that  it  can  be  readily  adjusted  to  the  changes  which  we 
foresee  are  going  to  happen  in  the  next  few  years.  And,  gentle- 
men, let  me  tell  you  that  those  changes  are  going  to  be  very  rapid 
and  very  sweeping,  so  that  we  must  take  them  into  consideration. 
We  cannot  do  it,  I  believe,  in  any  other  possible  way,  excepting 
to  have  appointed,  under  state  authority,  a  commission,  with  ample 
funds  and  ample  power  to  get  hold  of  all  the  facts  connected  with 
taxation  in  Indiana,  and  then  to  present  those  facts  in  such  form 
that  they  may  be  used  to  educate  the  state  upon  a  just  system  of 
taxation. 

If  we  are  to  keep  from  falling  into  that  condition  which  Presi- 
dent Bryan  pointed  out  yesterday  morning  we  must  do  this  thing. 
We  must  in  some  manner  or  other  get  these  facts.  I  am  convinced 
that  the  only  way  to  get  them  is  to  have  an  official  commission, 
representative  of  all  classes  of  the  people,  to  investigate  this  sub- 
ject and  report.  (Applause.) 

CHAIRMAN  WHITE  :  The  indictments  against  our  present  taxing 
system  seems  to  be  accumulating.  The  next  speaker  of  the  after- 
noon will  be  the  Hon.  Eben  H.  Wolcott,  State  Tax  Commissioner, 
and  he  will  talk  to  us  on  "The  Amendment  of  the  Tax  Clause  of 
the  Constitution  of  Indiana."  Gentlemen,  I  have  the  pleasure  of 
introducing  Mr.  Wolcott. 


IGf)  INDIANA  UNIVERSITY 

THE  AMENDMENT  OP  THE  TAX  CLAUSE  OF  THE  CONSTITUTION  OP 

INDIANA 

ME.  WOLCOTT:  Mr.  President  and  gentlemen — In  discussing 
the  amendment  of  the  tax  clause  of  the  Constitution  of  Indiana, 
the  subject  assigned  to  me,  I  ask  your  indulgence  to  first  quote  it, 
so  that  we  can  have  a  proper  foundation  upon  which  to  build  this 
discussion.  It  is  as  follows  : 

"The  General  Assembly  shall  provide  by  law  for  uniform  and 
equal  rate  of  assessment  and  taxation,  and  shall  prescribe  such 
regulations  as  shall  secure  a  just  valuation  for  taxation  of  all  prop- 
erty, both  real  and  personal  excepting  such  only  for  municipal, 
educational,  literary,  scientific,  religious  or  charitable  purposes, 
as  may  be  especially  exempted  by  law." 

You  will  note  that  it  is  brief,  concise  and  imperative,  demanding 
that  the  basis  of  all  taxation  shall  be  uniformity,  equality  and 
justice.  Prior  to  1891,  when  the  law  under  which  interpretation 
"the  fair  cash  value"  of  property  was  used  as  a  basis  of  assess- 
ment, the  taxation  of  property  in  Indiana  was  not  fair,  but  was 
unlawful  and  in  a  most  chaotic  and  dangerous  condition.  'Local 
affiliations,  mutual  desire  to  favor  or  protect  those  to  whom  they 
owed  allegiance  for  election,  or  on  account  of  relationship  or  per- 
sonal interest,  so  dominated  the  situation  that  inequalities  grew 
and  multiplied  as,  between  towns  and  counties  until  the  spirit  of 
the  law  was  forgotten  or  entirely  ignored. 

The  word  "fair"  opened  up  a  feeling  of  individual  judgment 
and  appraisal  that  practically  nullified  the  meaning  of  the  consti- 
tutional provision.  Each  assessor  acted  and  felt  that  nothing  was. 
fair  that  would  cause  his  locality  to  pay  more  tax  than  any  other, 
nor  could  anything  be  fair  to  his  constituents  that  would  place 
upon  them  a  greater  per  cent,  of  the  so-called  "burden  of  State 
tax"  than  any  other  community,  the  result  of  which  was  that  the 
state  lost  in  its  revenue  to  the  verge  of  bankruptcy. 

In  1891  Judge  Timothy  Howard  framed  and  caused  to  be 
enacted  the  law  that  established  the  State  Board  of  Tax  Commis- 
sioners, and  also  changed  the  wording  referring  to  values  to  "the 
true  cash  value ' '  instead  of  '  *  the  fair  cash  value. ' ' 

Great  improvement  was  immediately  felt  in  increased  valuations 
all  over  the  State,  as  under  the  interpretation  of  this  law  the  true 
cash  value  was  considered  to  mean  "the  selling  price  of  any  article 
at  the  place  where  it  is  located,  which  can  be  secured  at  private  sale 
and  not  at  forced  or  auction  sale." 


TAXATION    IN    INDIANA  167 

The  State  Tax  Board,  assessing  as  it  did  the  railroad,  telegraph, 
express,  transportation  companies,  etc.,  very  largely  increased  valu- 
ations and  influenced  the  new  taxing  officers  to  better  efforts  locally, 
but  the  letter  of  the  law  was  not  enforced.  Property  was  not 
assessed  at  its  true  cash  value,  and  I  do  not  believe  in  Indiana 
there  has  ever  been  a  time  when  all  property  was  assessed  at  its 
true  cash  value. 

For  many  years  the  Indiana  law,  while  not  perfect,  assessing 
property  as  it  does  under  the  so  called  "general  property  tax" 
was  very  effective  and  was  pronounced  by  many  as  one  of  the 
best  laws  upon  the  statute  books,  but  conditions  have  materially 
changed.  Property  valuations  are  no  longer  represented  almost 
entirely  by  real  estate  with  its  improvements  and  tangible  personal 
property,  but  owing  to  the  creation  of  a  vast  amount  of  securities 
in  recent  years,  or  of  that  class  of  property  known  as  ' '  intangibles, ' ' 
we  have  to  contend  with  a  condition  almost  entirely  different 
from  that  which  confronted  the  taxing  officials  of  former  days. 
Many  states  indeed  have  recognized  this  new  situation  and  have 
amended  their  constitutions  or  passed  such  laws  as  they  thought 
would  be  more  efficient  in%  securing  results.  In  the  words  of  Profess- 
or Schurman  in  his  presidential  address  before  the  members  of 
the  National  Tax  Convention,  ' '  This  is  an  expert  age  and  tax  raising 
has  become  a  function  of  government."  Naturally  this  calls  for 
the  services  of  well  equipped  m'en,  of  sufficient  machinery  to  carry 
out  the  work  of  the  proper  valuation  of  property  listed  for  taxa- 
tion, and  the  placing  of  such  laws  upon  the  statute  books,  as  will 
be  perfectly  fair  and  enforceable  when  put  into  practice. 

We  have  never  in  Indiana  enforced  a  penalty  for  the  violation 
of  the  taxing  laws,  so  that  they  are  practically  a  dead  letter  without 
the  proper  respect  of  those  whose  duty  it  is  to  carry  out  their 
provisions,  and  without  fear  to  those  who  deem  that  evasion  is 
simply  self -protection. 

I  am  compelled  per  force  by  my  limited  time,  to  discuss  very 
briefly  indeed,  certain  changes  in  the  taxing  laws  which  I  deem 
most  advisable.  Besides  some  of  these  changes  will  be  discussed 
most  ably  by  other  gentlemen  to  whom  these  subjects  have  been 
specifically  assigned.  It  is  useless  to  discuss  or  deny  the  fact  that 
property  in  Indiana  today  is  not  assessed  according  to  law.  The 
precedent  of  under-valuation  has  been  so  long  established  and  has 
become  so  fixed  that  any  radical  change  under  the  present  law 
would  be  difficult,  but  this  is  no  new  story  as  every  state  has  been 
or  is  confronted  with  the  same  situation. 


168  INDIANA    UNIVERSITY 

I  realize  that  the  suggestions  that  I  make  for  amendment  of 
the  taxing  laws  are  not  indefensible.  There  is  much  to  be  said 
both  pro  and  con  about  any  change,  but  that  some  changes  are 
imperative  is  unquestioned,  that  results  under  our  present  system 
are  not  satisfactory  is  true  indeed,  but  whether  the  changes  advo- 
cated by  me  are  the  best,  is  open  to  discussion  and  should  receive 
serious  and  careful  consideration. 

I  see  much  in  them,  and  so  present  them  briefly,  as  my  time  is 
limited.  They  are  not  original  with  me,  other  states  have  tried  in 
some  way,  every  change  I  suggest,  but  not  in  the  same  manner 
presented  in  this  paper.  I  suggest — 

First,  A  classification  tax  whereby  certain  kinds  of  intangible 
property  are  assessed  at  a  low  fixed  rate. 

There  can  be  no  question  but  that  intangible  property  repre- 
senting as  it  does  a  vast  part  of  the  personal  property  in  existence, 
is  not  taxed  at  its  true  cash  value  or  in  fact  listed  for  taxation 
at  all  except  to  a  very  small  degree.  Professor  Bullock  of  Harvard 
University  most  aptly  recognized  the  situation  of  the  taxation  of 
intangibles  and  declares,  "The  method  and  rates  of  taxation  must  be 
adjusted  to  the  requirements  of  the  various  classes  of  taxable  ob- 
jects ;  no  rate  upon  any  class  should  be  higher  than  can  be  collected 
with  reasonable  certainty.  No  rate  should  be  so  high  as  to  drive 
out  of  a  community  persons  or  capital  or  industries,  and  any  rate 
that  exceeds  what  a  class  of  taxable  objects  will  bear,  must  result 
in  loss  of  revenue,  injury  to  industry  and  such  general  demoraliza- 
tion as  accompanies  widespread  evasion  of  the  law."  Many  states 
have  recognized  this  and  have  passed  such  laws  as  to  consider  the 
assessment  of  certain  intangibles  as  different  from  other  classes  of 
real  or  personal  property.  In  this  connection  I  beg  to  refer  to  New 
York's  "Secured  Debt  Law"  upon  which  I  will  not  enlarge,  to  the 
Pennsylvania  Law  which  taxes  notes,  mortgages,  secured  and  un- 
secured, money  on  deposit  drawing  interest,  etc.,  at  four  mills  on 
the  dollar,  also  to  the  following  states  in  which  notes  secured  by 
mortgage,  in  the  state,  are  exempt,  such  as  California,  Colorado, 
Connecticut,  Delaware,  District  of  Columbia,  Idaho,  Louisiana, 
Maine,  Massachusetts,  New  Jersey,  Utah,  Washington,  Wisconsin 
and  Wyoming.  Also  commercial  paper  is  exempt  in  Delaware, 
District  of  Columbia,  Washington,  Wisconsin,  with  certain  kinds 
in  New  Jersey,  and  taxed  in  Pennsylvania  at  four  mills.  While 
1  his  class  of  tangible  property,  especially  mortgages  of  record  owned 
by  our  own  citizens,  is  assessed  at  the  full  local  rate  whether  the 
mortgages  are  secured  by  property  in  Indiana  or  elsewhere.  A 


TAXATION    IN    INDIANA  169 

citizen  of  the  State  of  Colorado,  Delaware,  District  of  Columbia, 
Idaho,  Utah,  or  Washington  or  Wisconsin  (this  state  has  an  income 
tax),  can  lend  money  in  our  own  state  without  paying  tax  either 
here  or  at  his  own  home.  Or  a  citizen  of  Pennsylvania,  Rhode 
Island,  New  York  or  Iowa  can  lend  money  in  our  state  paying  a 
low  fixed  rate  of  assessment,  in  other  words,  penalizing  the  citizen 
of  Indiana  who  desires  to  loan  money  on  mortgages  in  his  own 
state  or  elsewhere  as  against  the  resident  of  other  states  in  the 
Union.  This  phase  of  the  tax  question  relating  to  the  assessment 
of  intangible  property  is  most  vitally  important,  but  I  believe  it 
has  been  fully  considered  by  the  Honorable  Fred  S.  Sims,  so  that 
I  need  not  enlarge  further  upon  this  in  particular. 

Second,  The  exemption  of  money,  either  on  hand  or  deposited 
in  banks  or  trust  companies  which  does  not  draw  interest. 

There  has  always  been  one  class  of  property  that  is  assessed 
at  its  true  cash  Value  more  than  any  other,  and  that  is  money. 
Under  a  conscientious  desire  to  regard  their  obligation,  some — 
yes  many — assessors  have  placed  money  upon  the  duplicate  at 
one  hundred  cents  on  the  dollar  as  there  could  be  no  difference 
of  opinion  as  to  its  value,  but  countless  other  articles  of  personal 
property  have  been  listed  from  one-fourth  to  full  value,  depending 
upon  the  personal  ideas  of  the  local  assessor  and  his  judgment  re- 
garding them. 

Money  in  itself  is  of  no  value.  It  simply  has  an  exchange  value 
and  is  worth  nothing  in  itself  except  that  it  can  be  exchanged  for 
something  desired  or  needed.  The  value  of  every  dollar  is  reflected 
in  some  other  property  of  some  kind,  for  if  there  were  no  values  in 
property,  then  money  would  be  useless. 

In  primitive  times  in  our  own  country  men  met  and  exchanged 
articles  in  person,  the  trapper  his  furs  for  food,  or  clothing,  the 
farmer  his  products  for  those  of  the  merchant  or  the  services  of 
the  smith  or  the  miller,  but  as  articles  multiplied  and  distance  grew 
between  those  who  desired  to  exchange,  it  became  necessary  to  use 
some  medium,  or  in  other  words,  money  entered  into  the  exchange 
as  a  needed  factor.  Money  earns  nothing  itself.  It  neither  in- 
creases nor  decreases  in  value  except  as  its  purchasing  power  grows 
or  declines,  which  is  simply  again  reflecting  its  exchange  value  and 
I,  personally,  do  not  think  that  money,  idle  or  uninvested  money, 
should  be  taxed.  At  present  we  do  tax  idle  money,  if  found,  but 
we  provide  a  vast  amount  of  untaxable  securities  which  permits 
millions  of  dollars  invested  in  such  to  escape.  As  soon  as  money 
is  converted  into  something  else,  such  as  certificates  of  deposit, 


170  INDIANA    UNIVERSITY 

notes,  mortgages,  bonds,  etc.,  and  begins  to  earn  or  produce  an 
income  it  is  a  different  matter.  Some  states  recognize  this  and 
do  not  assess  money  on  deposit  unless  interest  bearing,  notably 
Pennsylvania.  Another  reason  why  money  should  not  be  taxed 
is  that  the  amount  of  actual  money  listed  for  assessment  is  as  noth- 
ing compared  with  deposits  of  banks  or  the  known  volume  of  money 
in  circulation,  and  any  law  which  contains  provisions  which  are 
so  completely  evaded  or  which  places  such  a  heavy  burden  upon 
the  few  who  conform  to  its  mandates  is  a  poor  law  and  should 
be  amended  or  changed. 

TMrd}  The  exemption  of  household  furniture  and  personal 
effects  to  the  value  of  $ . 

The  farcical  assessment  of  household  goods  in  Indiana  is  such 
as  to  readily  prove  that  the  law  as  it  stands  at  present  is  most 
ineffective.  The  average  value  of  household  furniture  assessed  in 
the  various  counties  in  Indiana  as  reported  to  the  State  Tax  Com- 
missioners last  year  was  $43.50,  the  highest  shown  being  in  Tippe- 
canoe  County  with  an  average  of  $102  and  the  lowest  being  Starke 
County  with  an  average  assessment  of  $19.  Marion  County,  in 
which  is  located  Indianapolis,  did  not  report.  That  this  does  not 
represent  the  actual  value  of  household  goods  is  beyond  dispute, 
but  that  it  does  show  the  mental  attitude  of  the  people  who  are 
assessed  is  clearly  evident.  Take  the  assessment  of  Starke  County, 
averaging  $19.  Place  an  average  rate  of  assessment  on  it  of  3 
per  cent,  and  you  would  get  a  taxing  return  of  57c.  New  York 
State  exempts  household  furniture  and  personal  effects  to  the  value 
of  $1,000.  Recently  the  State  Tax  Board  had  a  request  from  the 
State  of  Maryland  asking  their  opinion  about  exempting  household 
furniture  to  the  extent  of  $500,  and  while  I  do  not  feel  that  there 
should  be  too  large  a  value  of  exemption,  I  do  feel  that  every  en- 
couragement should  be  given  to  the  home  builders  of  our  State, 
to  those  whose  sole  possession  consists  largely  of  their  little  house 
furnishings  and  that  we  can  afford  to  be  generous  when  valuing 
this  most  essential  and  necessary  part  of  our  domestic  life. 

Fourth,  The  power  of  the  State  Tax  Commissioners  to  equalize 
assessments  of  personal  property  by  classes. 

There  is  no  department  of  the  taxing  question  that  causes  as 
much  concern  as  the  assessment  of  certain  classes  of  personal  prop- 
erty. Local  conditions  are  such  an  important  factor.  The  un- 
controllable impulse  to  protect  their  own  community  from  over- 
taxation has  resulted  in  a  system  of  comparative  assessments  be- 
tween the  different  counties  in  the  State  of  Indiana  which  most 


TAXATION    IX    INDIANA  171 

unfortunately  has  for  its  basis  of  values,  not  the  true  cash  value 
but  some  certain  value  which  it  is  felt  will  not  result  in  an  excessive 
assessment  as  compared  with  other  counties. 

Recognizing  this  condition,  the  State  Tax  Commissioners  last 
year  made  a  most  strenuous  effort  for  the  equalization  of  personal 
property  throughout  the  State  and  while  the  results  were  far  from 
perfect,  as  I  will  show  from  comparative  tables  later,  they  re- 
sulted in  a  gain  of  about  $36,000,000,  including  certain  improve- 
ments on  real  estate  as  against  the  gain  of  about  $3,000,000  for 
the  preceding  year,  including  also  improvements  upon  real  estate. 

Permit  me  to  say  here  that  considering  the  machinery  at  the 
disposal  of  the  taxing  officers  in  the  State  of  Indiana,  the  exceed- 
ingly low  salaries  paid  for  the  services  of  those  employed,  the  vast 
range  of  information  that  is  required,  the  accurate  knowledge  and 
almost  miraculous  power  of  divination  that  would  be  needed  to 
secure  results  under  our  present  methods,  the  work  that  has  been 
done  is  truly  wronderful  and  deserves  the  utmost  commendation. 
But  the  imperfections  are  such,  the  inability  to  perform  their  duties 
completely  and  correctly  in  the  limited  time  required  by  the  law 
and  with  the  lack  of  experience  and  equipment  of  those  appointed 
to  carry  out  its  provisions,  as  to  make  it  most  difficult  indeed  to 
secure  the  equalization  that  is  demanded  by  the  law  and  should 
be  enforced  in  order  that  justice  may  be  done  to  all.  Last  year 
the  State  Tax  Board  prepared  a  blank  showing  the  average  assess- 
ment of  certain  classes  of  personal  property  which  were  to  be 
returned  to  us  to  be  used  for  equalization  purposes,  and  while  in 
many  places  evidently  a  most  careful  effort  was  made  to  assess 
according  to  law,  in  some  places  unquestionably  careless  and  imper- 
fect methods  governed  the  assessment  of  many  classes  of  property 
or  else  the  records  were  imperfect  and  unreliable  that  were  sub- 
mitted to  us.  I  presented  this  comparative  statement  before  the 
State  meeting  of  Tax  Commissioners  and  County  Assessors,  and 
with  your  permission,  I  will  ingraft  that  part  of  my  report  in  this 
paper : 

The  average  value  assessed  against  farm  implements  from  the 
different  counties  reporting  was  $51.80,  and  varied  from  $150  in 
Gibson  County  to  about  $25  in  Crawford,  Jefferson,  Pike,  Scott 
and  Starke;  the  lowest  county  being  Jennings  which  showed  an 
average  value  of  about  $22. 

Household  furniture  averaged  $43.50,  the  highest  shown  being 
Tippecanoe  with  an  average  of  $102 ;  Sullivan  next  with  $90 ;  Gib- 
son, a  rather  poor  southern  county  at  $75 ;  Madison  County,  rich 


172  INDIANA   UNIVERSITY 

aud  prosperous  at  $74;  then  another  southern  county,  Harrison, 
at  $73;  the  lowest  being  Starke  County,  in  the  northwest  part  of 
the  State  with  an  average  assessment  being  reported  of  about  $19. 

Automobiles  averaged  about  $300,  but  the  variations  were  not 
so  great;  $450  being  the  highest  and  $175  in  Jay  County  the 
lowest.  We  all  realize  that  there  would  naturally  be  some  wide 
difference  in  opinion  as  to  the  value  of  farm  implements  which  de- 
preciate greatly  after  use,  the  care  that  has  been  given  to  the  work 
of  preserving  them  being  so  varied,  and  as  to  the  value  of  household 
goods  which  are  of  personal  value  largely  to  the  owner,  not  being 
desirable  property  at  second  hand.  But  when  it  comes  to  the 
valuation  of  horses,  cattle  and  hogs,  these  are  staple  commodities, 
readily  salable,  convertible  into  money,  and  the  judgment  of  men 
should  not  differ  greatly  nor  should  the  character  and  quality  of 
live  stock  differ  much  in  the  various  counties,  but  it  seems  when 
it  comes  to  valuing  this  class  of  property  for  taxing  purposes,  the 
variations  shown  were  very  great. 

The  average  value  of  horses  as  reported  to  us  throughout  the 
State  was  about  $81 ;  the  highest  being  $130 ;  in  Dekalb  County, 
Elkhart,  Gibson  and  Greene  at  $125 ;  Tippecanoe,  $112 ;  Harrison, 
$109;  with  Lake,  Tip  ton,  Vermillion  and  Wabash  at  $100  and  over. 
The  lowest  was  Jennings  County  with  an  average  value  of  $46.10 ; 
Dearborn  and  Starke  at  $56. 

The  average  value  reported  on  cattle  was  $27;  the  highest  by 
Greene  County  with  an  average  of  $50;  Tippecanoe  following  at 
$45,  and  Lake  at  $40;  the  lowest  being  Jennings  County  at  $14; 
with  Crawford,  Knox  and  Posey  at  $15. 

The  average  value  of  hogs  was  $7,  ranging  from  $18  in  Black- 
ford  County  and  $14  for  brood  sows  in  Rush  County  to  $4  in  Van- 
derburgh,  and  an  average  value  of  about  $5  in  Allen,  Crawford, 
Dearborn,  Elkhart,  Gibson,  Jennings,  Lake,  Miami,  Scott,  Steuben, 
St.  Joseph  and  "White. 

More  equalization  was  found  in  the  assessment  of  money,  notes, 
mortgages  and  bank  stocks.  But  even  in  the  assessment  of  this 
class  of  property,  the  value  of  which  is  practically  fixed,  certain 
counties  persisted  in  assessing  notes  and  money  more  than  bank 
and  trust  company  stock,  which  is  of  greater  value  in  practically 
every  instance. 

In  order  to  correct  these  inequalities  and  those  that  arose  for 
the  under-assessment  of  certain  other  personal  property,  the  State 
Board  of  Equalization  found  it  necessary  to  raise  twenty-five  coun- 
ties, and  under  the  present  law  we  wer&  compelled  to  raise  the 


TAXATION    IN   INDIANA  173 

entire  personal  property  in  the  county.  Whereas,  if  we  could  have 
raised  certain  classes  which  had  been  improperly  or  under-assessed, 
we  could  have  made  a  much  better  and  more  satisfactory  assess- 
ment. 

There  is  no  doubt  but  that  certain  inaccuracies  crept  into  these 
reports  sent  to  us,  but  we  could  not  understand  why  any  error  or 
errors  could  possibly  account  for  such  variations.  In  order  to  go 
into  this  situation  a  little  more  differently,  let  us  compare  some 
adjoining  counties  with  average  valuations  as  follows: 

Farm 
Implements.     Furniture.     Autos.         Horses.     CaUle.        Hogs. 

Daviess   $40  $30  $350  $86  $30  $0 

Knox    55  40  300  50  15  6 

Bartholomew    70  46  380  90  27  0 

Johnson    53  54  300  87  36  10 

Pulaski    28  25  250  64  20 

Starke 26  19  241  56  23  6 

Delaware  35  38  395  70  30  5 

Madison 72  74  431  86 

Crawford  25  20  250  60  15  5 

Harrison    65  73  419  109  38  7 

Adams 65  50  ...  93  27  6 

Jay 65  50  175  90  28  7 

Benton    75  50  280  81  35 

Warren    40  31  301  73  27  7 

Huntington    67.50        41.50399  87  24  7 

Wabash 50  30  200  100  35  7 

Tipton    46  44  330  100  35  8 

Clinton   50  38  290  70  31  7 

Jackson    68  65  252  94  36  7 

Jennings    22  19  245  46  14  5 

Clark    30  34  332  73  33  6.50 

Floyd    75  60  350  80  20  12 

Greene    40  50  400  125  50 

Sullivan 72  90  400  72  24  6 

If  any  argument  were  needed  for  a  law  permitting  the  State 
Board  of  Tax  Commissioners  to  equalize  assessments  of  personal 
property  by  classes,  I  sincerely  believe  that  the  above  tables  sub- 
mitted, showing  the  great  difference  in  values  notwithstanding  the 
most  earnest  and  sincere  effort  of  many  of  the  tax  officials  in  the 
State  to  secure  uniformity  and  equality,  would  be  conclusive  proof 
that  some  other  authority,  to  be  effective,  must  be  given  other  than 
the  law  now  provides. 

Fifth,  The  appointment  of  county  assessors  from  civil  service 
examination  to  be  under  the  direct  control  of  the  State  Board  of 
Tax  Commissioners. 


174  INDIANA    UNIVERSITY 

The  advisability  of  divorcing  the  local  influence  which  now 
exists  and  is  so  potently  felt  in  the  assessment  of  our  towns,  counties 
and  cities,  influenced  as  it  is  by  the  fact  that  the  position  of  the 
county  assessor  and  township  assessors  depends  upon  their  ability 
to  please  their  constituents,  these  offices  being  elective,  has  been 
made  plain  to  many  students  of  taxation  in  the  past  because  in 
many  cases  the  provisions  of  the  taxing  laws  have  been  absolutely 
disregarded  and  disobeyed  when  they  ran  counter  to  public  opinion. 
I  say  this  without  any  reflection  upon  the  integrity  of  any  officer 
in  the  State  of  Indiana,  as  this  experience  is  not  alone  confined 
to  Indiana  but  to  practically  every  state  in  the  Union  which  has 
a  law  similar  to  our  own. 

Professor  Seligman  in  his  Essays  in  Taxation  quotes  from  a 
number  of  State  Commissions  regarding  their  opinion  of  the  general 
property  tax  and  its  effectiveness.  One  calls  it  "  a  tax  upon  igno- 
rance and  honesty,"  another  speaks  of  "the  mischief  wrought  by 
its  corrupting  and  demoralizing  influence, ' '  another  calls  the  system 
' '  debauching  to  the  conscience  and  subversive  of  the  public  morals 
— a  school  for  perjury  permitted  by  law. ' '  From  a  New  York  report 
comes  this  criticism,  "it  puts  a  premium  on  perjury  and  a  penalty 
on  integrity."  The  Ohio  Commission  declared  that  "it  results 
in  debauching  the  moral  sense  and  is  a  school  of  perjury,  imposing 
unjust  burden  on  the  man  who  is  scrupulously  honest."  Ohio 
recently  passed  the  Warnes  Law  and  as  one  Ohio  paper  states,  it 
*  *  throws  mantle  of  Civil  Service  around  entire  taxation  machinery 
of  State,  and  2,000  employees  will  be  tested  for  their  efficiency." 

The  above  criticisms  are  applied  to  the  general  property  tax 
system,  and  while  I  wish  this  to  stand  as  a  criticism  of  this  system, 
I  wish  it  especially  to  be  borne  in  mind  that  with  such  feeling 
against  the  law  and  its  imperfections  the  county  assessor 
should  be  absolutely  removed  from  any  local  influence  or  any 
feeling  that  the  law  is  imperfect  or  any  desire  to  shield  or  protect 
in  his  mind,  those  to  whom  he  is  under  obligation,  so  that  if  he* 
was  responsible  only  to  the  State  Tax  Commission,  his  tenure  of 
office  depending  upon  his  services  and  his  ability  and  efficiency, 
there  would  be  no  other  consideration  before  him  than  to  see  that 
the  provisions  of  the  law  are  enforced. 

That  under  our  law  vast  quantities  of  property  are  escaping 
taxation,  is  too  well  known.  That  a  vast  army  of  men  do  not  pay 
tax  is  shown  from  the  report,  that  in  the  county  of  Marion  alone 
28,000  did  not  pay  any  taxes  for  the  year  1912.  Add  this  to  those 


TAXATION   IN   INDIANA  175 

in  other  counties  and  the  resultant  figures  »are  appalling.  Some- 
thing should  be  done  to  stop  this  army  of  evasion  with  its  camp 
followers  of  tax  dodgers  and  those  who  only  pay  partial  taxes. 

I  see  no  way  under  our  present  law  or  a  law  similar  to  this 
except  to  divorce  the  taxing  officers  from  politics  and  make  their 
positions  dependent  upon  satisfactory  services  and  strong  integrity. 
Wisconsin,  which  has  made  some  wonderful  strides  in  the  way  of 
modern  tax  methods,  has  created  the  office  of  Supervisor  of  Assess- 
ments, appointed  by  the  Governor  under  civil  service  rules  and 
while  this  officer  does  not  supplant  the  county  assessor,  he  has 
full  authority  to  hold  hearings,  listen  to  complaints  and  if  neces- 
sary, order  the  reassessment  in  any  county  which  has  been  im- 
perfectly assessed.  In  the  last  two  years,  from  their  reports,  I 
understand  56  reassessments  were  applied  for  and  twenty-five 
granted,  the  results  being  most  surprisingly  beneficial  both  from  a 
moral  effect  and  from  the  stimulus  given  to  those  conscientious 
officers  who  did  efficient  work  as  against  those  who  were  unfair 
or  neglectful.  Wisconsin  has  an  income  tax  law  which  I  trust  will 
be  discussed  at  this  convention  by  Professor  Adams,  as  it  is  a  large 
step  forward  in  modern  taxation  methods  and  well  worth  serious 
consideration. 

Sixth,  The  basis  of  taxation  of  all  property  to  be  its  true  cash 
value  with  a  limit  to  the  rate  of  assessment. 

The  fact  that  the  law  provides  that  the  true  cash  value  of  the 
property  must  be  the  basis  of  assessment  in  Indiana  would  seem  to 
indicate  that  in  advising  this  as  a  change  in  our  present  method 
of  assessment,  I  am  not  in  reality  advocating  a  law  different 
from  the  one  now  in  force  except  in  relation  to  limiting  the  rate, 
but  it  is  begging  the  question  to  say  that  property  is  assessed  at 
its  true  cash  value  in  Indiana.  It  is  not,  and  never  has  been. 
The  basis  of  our  present  method  of  taxation  is  to  a  large  extent 
comparative.  Someone,  somewhere,  placed  a  value  that  he  believed 
would  be  acceptable  or  approved  by  the  people,  which,  of  course, 
is  not  a  high  value,  but  one  sufficiently  low  to  be  satisfactory  and 
other  values  were  builded  around  this  under  the  guise  of  equaliza- 
tion. That  this  leads  into  a  labyrinth  of  error,  discrepancies, 
individual  differences  and  personal  favoritism,  is  unquestionable. 
There  can  be  no  equality  in  assessment  unless  the  true  cash  value 
is  used  as  the  basis,  but  unless  we  limit  the  rate,  unless  we  put 
some  check  upon  the  administration  of  those  into  whose  hands  the 
expenditures  of  our  money  is  placed,  there  will  be,  unless  human 


176  INDIANA'  UNIVERSITY 

nature  has  changed  and  the  history  of  past  experiences  are  untrue, 
an  era  of  extravagance  and  mis-administration  most  deplorable 
indeed.  There  is  no  check  upon  the  personal  expenditure  of  money 
or  public  expenditure  of  money  like  a  limited  income.  It  is  the 
history  of  countries  and  peoples  that  in  their  public  affairs  they 
always  spend  their  full  revenues,  and  besides  are  usually  in  debt 
to  the  limit  of  their  ability  to  contract  the  same.  I  believe  it  would 
be  most  dangerous  indeed  to  assess  property  as  the  law  requires 
and  prescribes,  unless  some  check  is  put  upon  the  administration, 
of  the  amount  of  revenue  that  would  be  derived  from  this  valuation. 
Ohio  has  recognized  this  and  has  placed  a  limit  of  1  per  cetat. 
Some  other  states  attempt  to  use  the  basis  of  assessment  as  the 
true  cash  value  and  then  take  a  certain  portion  of  this  as  the  amount 
to  be  taxed,  but  this  again  leads  to  under  valuation  and  in  my 
mind  is  a  dangerous  precedent  to  establish.  There  can  only  be 
one  basis  of  value  and  that  is  the  true  cash  value.  The  people  are 
already  complaining  bitterly  of  their  increased  amount  of  taxes. 
It  has  become  a  most  live  and  serious  question  before  the  American 
people,  due  largely  to  the  fact  that  vast  amounts  of  certain  classes 
of  property  are  under-assessed  or  entirely  escape  taxation,  while 
the  burden  rests  most  heavily  upon  others  whose  property  is  visible 
or  tangible,  or  of  an  easily  ascertained  value,  or  those  who  are 
conscientious  in  their  desire  to  obey  the  law,  and  these  certainly 
are  entitled  to  the  protection  accorded  by  a  limit  being  placed  upon 
the  amount  which  shall  be  charged  against  them  for  the  support 
of  the  State  and  its  institutions  and  the  government. 

I  am  fully  aware  that  our  needs  are  growing,  that  the  country 
must  not  stand  still,  that  our  schools,  benevolent  institutions,  our 
public  buildings  and  public  enterprises,  roads  and  highways  must 
be  provided  for  and  maintained,  but  if  all  the  property  were  taxed, 
even  at  varying  rates  according  to  its  productive  ability,  and  the 
burden  of  tax  was  distributed  as  it  should  be,  so  that  every  citizen 
of  the  United  States  paid  some  part  or  a  just  amount  for  the  privi- 
lege of  citizenship  and  the  corresponding  privileges  and  blessings 
that  go  with  it,  I  believe  there  would  be  little  complaint. 
But  I  do  believe  that  there  should  be  some  check  in  expen- 
ditures or  at  least  in  the  distribution  of  these  expenditures. 
In  other  words,  we  are  building  a  net  work  of  gravel  roads  and 
bridges  and  complete  public  improvements  throughout  the  State, 
which  will  meet  the  needs  of  many  years  to  come.  There  were 
outstanding  January  1st,  1913,  $27,849,262.26  of  Gravel  road  bonds. 


TAXATION   IN   INDIANA  177 

During  1912,  there  were  issued  $7,204,926.87  of  the  same  kind  of 
bonds,  some  were  retired  but  1913  was  a  big  year  in  road  building 
(I  believe  the  figures  are  not  yet  available)  so  that  we  can  safely 
say  there  are  over  $32,000,000.00  of  Gravel  road  bonds  now  out- 
standing. There  should  be  unquestonably  State  Supervision  to 
protect  the  people  for  this  vast  amount  of  money  expended.  But 
aside  from  this,  I  deem  it  unfair  that  we  of  today  must  be  charged 
and  pay  for  these  vast  improvements.  I  say  this  because  all  these 
Gravel  road  bonds  and  other  securities,  practically,  are  sold  to 
be  paid  within  ten  years.  "Why  ten  years?  "Why  not  fifty,  so 
that  those  who  follow  us  and  profit  by  these  splendid  improvements 
should  bear  their  proportionate  share  as  would  be  most  just  ?  The 
fact  that  some  of  these  roads  may  not  be  as  permanent  as  desired 
is  not  the  question — make  them  permanent,  even  if  at  an  additional 
cost.  This  $32,000,000.00  of  road  bonds  cost  our  citizens  directly 
interested  $3,200,000.00  annually  besides  the  interest.  If  divided 
into  fifty  years  the  cost  would  be  $640,000.00  annually.  Under 
this  arrangement  we  could  build  our  roads  properly  and  perma- 
nently, and  relieve  the  tax  payer  of  part  of  the  burden  that  is  now 
growing  heavy  indeed. 

I  am  somewhat  doubtful  of  our  ability  to  change  our  method 
of  living  or  the  expensive  tastes  and  requirements  of  the  present 
age.  Certain  changes  in  our  tax  system  would  be  of  great  benefit 
indeed  toward  distributing  the  amount  of  our  requirements  and 
placing  them  upon  those  who  are  justly  entitled  to  pay,  whether 
the  methods  I  have  advocated  are  best  or  not. 

Many  changes  are  needed  from  our  present  method  of  assess- 
ment, and  it  may  be  that  in  the  years  to  come  the  income  tax,  plac- 
ing its  burden  upon  our  citizenship  in  proportion  to  their  ability, 
recognizing  some  of  the  higher  ideals,  will  be  the  most  efficient  and 
most  desirable  way.  But  unless  we  make  such  a  radical  change 
and  still  attempt  to  preserve  the  basis  of  our  present  law,  I  sincerely 
trust  that  the  ideas  that  I  have  advanced  will  be  given  such  con- 
sideration as  they  merit,  and  perhaps  suggest  some  method  even 
better  wherein  we  can  secure  the  much  needed  improvements.  (Ap- 
plause.) 

DISCUSSION 

CHAIRMAN  WHITE  :  Gentlemen,  the  program  provides  that  the 
discussion  following  this  paper  shall  be  led  by  Hon.  Charles  F. 
Remy,  of  Indianapolis.  I  have  the  pleasure  of  presenting  Mr. 
Remy. 

12—848 


178  INDIANA   UNIVERSITY 

MR.  REMY:  Mr.  President  and  members  of  the  Conference — 
The  time  which  is  allotted  to  me  for  the  discussion  of  the  papers 
this  afternoon,  I  am  going  to  consume  in  the  discussion  of  the  last 
paper  which  was  read.  I  could  not,  or  at  least  I  would  not,  take 
exception  to  anything  that  was  said  by  Mr.  Lapp.  What  he  said  I 
believe  we  all  agree  to,  and  there  is  no  room  for  other  than  com- 
mendatory statement. 

It  is  apparent  from  the  trend  of  the  papers  which  have  'been 
read  during  this  conference,  and  from  the  expressions  heard,  that 
those  in  attendance  are  almost  unanimous  in  their  advocacy  of  such 
changes  in  our  taxing  statutes  as  will  require  an  amendment  of  the 
tax  clause  of  the  State's  Constitution.  If  for  taxing  purposes  we 
are  to  classify  property,  and  provide  different  methods  for  different 
classes,  and  if  we  are  to  tax  incomes,  or  if  we  are  to  exempt  any 
property  which  is  held  and  used  for  private  purposes,  then  the  tax 
provision  of  the  Constitution  of  1852  must  be  amended.  In  this 
conference  at  least,  it  is  scarcely  worth  while  to  take  the  time  to 
discuss  the  general  question.  The  negative  would  go  unsupported, 
except  perhaps  by  Ex-State  Tax  Commissioner  McCardle.  We 
differ,  however,  as  to  the  nature,  scope  and  details  of  the  new  taxing 
laws  we  would  enact.  Mr.  Wolcott  doubtless  assumed  that  there 
would  be  little  or  no  difference  of  opinion  on  the  question  as  to 
whether  or  not  the  tax  clause  of  our  constitution  should  be  amended, 
and  instead  of  presenting  that  question  directly,  has  suggested  a 
number  of  changes  in  the  statutes,  most  of  which  would  necessitate 
a  constitutional  amendment. 

The  first  suggestion  is,  that  the  State  should  enact  a  law  where- 
by certain  kinds  of  intangible  property  shall  be  assessed  at  a  low 
fixed  rate.  It  is  admitted  by  Mr.  Wolcott  that  under  present  laws 
intangibles  for  the  most  part  escape  taxation.  His  reasoning  is, 
that  whereas  men  will  not  list  their  tangibles  if  taxed  at  the  same 
rate  as  other  property,  therefore,  it  is  necessary  to  make  the  rate 
low  so  that  the  owners  of  such  property  may  thereby  be  induced 
to  unfold  to  the  tax  man.  I  am  not  sure  that  the  owner  of  intangi- 
bles should  be  thus  favored,  even  if  the  plan  were  otherwise  prac- 
tical. Mr.  Wolcott  would  say  to  the  farmer  who  had  his  money 
invested  in  hogs,  that  he  should  be  taxed  at  the  true  cash  value  of 
his  property,  but  to  the  money  lender,  that  if  he  would  please  list 
his  notes  for  taxation,  he  should  have  a  special  privilege  not  granted 
to  the  owner  of  swine.  Such  a  law  would  not  be  just.  Justice  should 
!>«•  placed  above  expediency.  I  think  somebody  in  this  conference 


TAXATION    IN    INDIANA  179 

ought  to  speak  especially  for  justice  among  taxpayers.  In  my 
opinion  it  is  never  expedient  in  the  long  run  to  enact  an  unjust 
law.  I  quite  agree  with  the  reader  that  intangibles  cannot  be 
reached  by  the  same  law  that  would  reach  a  horse  or  a-  cow  or  a 
stack  of  hay ;  but  that  does  not  mean  that  it  is  necessary  to  grant 
special  privilege  to  the  owner  of  either  class.  We  must  find  a  way, 
or  ways,  to  reach  the  intangibles.  The  promissory  note  should  be 
taxed  like  the  herd  of  swine,  at  its  true  cash  value.  It  is  argued 
that  if  the  tax  dodger  who  has  his  property  in  intangibles  is  re- 
quired to  pay  his  taxes  like  an  honest  man,  he  will  remove  his  prop- 
erty to  another  state.  If  all  states  had  uniform  laws  this  would  be 
impossible.  To  the  end  that  uniform  laws  for  the  listing  of  in- 
tangible property  may  at  an  early  date  be  enacted  by  the  various 
states,  I  would  suggest  that  the  next  session  of  the  Indiana  General 
Assembly  provide  for  an  interstate  tax  commissioner,  and  that  by 
proper  resolution  other  states  be  asked  to  ena.ct  similar  laws.  To 
be  sure  such  officers  would  have  only  advisory  powers,  but  I  feel 
certain  that  ere  long  much  of  the  property  of  the  tax  dodger  could 
be  reached.  I  believe,  too,  that  there  should  be  some  method  of 
publicity  so  that  everyone  could  know  the  taxes  paid  by  every  other 
person.  That,  however,  which  is  most  needed  in  Indiana  to  reach 
intangibles,  is  an  income  tax  law. 

Mr.  Wolcott's  second  proposition  is,  that  money  on  hand  or 
money  on  deposit,  not  drawing  interest,  should  be  exempt  from 
taxation.  Of  course,  such  a  law  under  our  present  constitution 
would  not  be  valid.  It  would  require  a  constitutional  amendment. 
Such  a  law  would  not  be  just,  and  I  cannot  persuade  myself  that 
from  any  standpoint  it  would  be  wise. 

We  could  not  go  before  the  people  of  Indiana  and  say  that  that 
is  a  just  law.  You  cannot  tell  the  farmers  of  Indiana  that  money 
is  of  no  value.  They  know  better.  They  know  that  it  is  of  some 
value  to  them.  You  cannot  make  farmers  and  business  men  gen- 
erally understand  that  it  is  just  not  to  tax  money,  and  at  the  same 
time  just  to  tax  hogs  and  corn  and  hoop  poles ;  and  if  you  do  not 
have  a  just  law,  you  cannot  have  a  public  sentiment  in  favor  of 
the  law.  It  is  a  poor  citizen  who  would  merely  hold  on  to  his 
money.  He  should  be  penalized  rather  than  favored.  On  the 
same  principle  the  farmer  ought  not  to  be  taxed  on  his  farm,  if 
he  decides  to  let  it  lie  fallow,  nor  ought  the  manufacturer  to  pay  any 
taxes  on  his  plant  if  he  decides  to  close  down  for  a  year,  while  he 
and  his  family  travel  abroad.  It  is  argued  that  the  money  in 


180  INDIANA    UNIVERSITY 

itself  is  of  no  value.  So  the  farm,  or  the  factory  plant  in  them- 
selves are  of  no  value.  The  argument  that  money  when  taxed  is 
listed  at  one  hundred  cents  on  the  dollar,  while  real  estate  and 
personal  property  are  not  so  listed,  does  not  meet  the  question.  All 
property  should  be  listed  at  its  true  cash  value.  It  does  not  appeal 
to  me  that  because  so  small  a  portion  of  the  money  of  tax  payers 
is  listed,  that  we  should  therefore  grant  a  special  privilege  to  that 
class  of  tax  payers.  It  is  said  that  men  will  perjure  themselves, 
and  that  the  law  ought  to  be  changed  for  that  reason.  I  have  very 
little  faith  in  such  a  method  of  improving  the  morals  of  those  who 
falsify  their  tax  returns.  We  must  find  a  way  to  make  men  list 
their  money  for  taxation.  Mr.  Wolcott  admits  in  his  paper  that 
in  Indiana  we  have  never  enforced  a  penalty  for  a  violation  of 
the  taxing  laws.  Why  not  make  some  arrests?  We  fill  our  work- 
houses and  jails  with  vagrants.  Why  not  send  some  tax  dodgers 
to  join  them?  In  my  opinion  Indiana  needs  a  state  wide  movement 
for  the  enforcement  of  tax  laws.  Such  a  movement  as  will  awaken 
the  people  to  the  gross  injustice  under  present  methods,  and  create 
the  public  sentiment  which  we  must  have.  If,  by  some  means  it 
could  be  brought  to  the  attention  of  every  home  owner  in  Indiana 
that  real  estate  is  bearing  an  unjust  proportion  of  the  taxes,  we 
would  soon  have  a  public  sentiment  which  would  bring  about,  not 
only  better  statutes,  but  a  proper  enforcement  of  all  taxing  laws. 
Such  a  movement  and  public  sentiment  may  be  slow  in  coming, 
but  in  my  opinion  it  will  come  by  and  by.  We  will  not  hasten  the 
day,  however,  by  yielding  to  the  tax  dodger^  and  relieving  him  of 
the  necessity  of  resorting  to  perjury  in  the  listing  of  his  taxables. 
Let  us  educate  the  people  on  the  inequalities.  When  they  see  the 
injustice  their  desire  for  fair  play  as  suggested  by  Mr.  Adams, 
will  help  to  better  enforcement  of  all  laws.  I  am  sure  that  if  the 
men  in  attendance  in  this  conference,  yes,  if  the  Department  of 
Indiana  University  which  has  this  conference  in  charge,  would 
take  hold  of  the  question  in  dead  earnest,  it  would  not  be  long 
until  we  would  have  the  necessary  public  demand.  The  chief  rea- 
son for  defective  laws,  and  the  lack  of  public  sentiment  to  demand 
an  enforcement  of  the  laws  we  have,  is  due  to  the  fact  that  the  tax 
dodgers  have  always  been  on  hand  at  our  legislatures,  and  have 
been  active  in  creating  sentiment  which  is  adverse  to  proper  laws 
and  law  enforcement. 

I  might  here  give  a  little  instance  of  what  took  place  some  years 
ago  in  reference  to  a  tax  .law  which  was  prepared  and  presented 


TAXATION   IN   INDIANA  181 

to  the  legislature.  When  Governor  Hanly  took  the  oath  of  office, 
and  was  preparing  his  message  to  the  legislature,  I  had  a  conversa- 
tion with  him,  interested  then  as  I  am  now  in  the  tax  question.  I 
called  his  attention  to  the  fact,  that  the  farmer  is  required  to  file 
a  complete  inventory  of  all  his  personal  property.  There  are  fifty 
specific  questions  he  has  to  answer  to  the  assessors.  He  has  to  say 
how  many  horses  he  has,  how  many  cattle  he  has,  how  many  hogs, 
how  many  hoop  poles,  how  much  cider  in  the  cellar,  how  many  gal- 
lons of  molasses  and  so  on.  There  are  questions  covering  every 
kind  of  property  that  he  has.  I  called  the  Governor's  attention 
to  the  fact  that  the  merchant  is  just  asked  one  question,  ' '  Merchan- 
dise and  value."  He  does  not  have  to  file  any  inventory  at  all. 
And  I  called  his  attention  to  the  fact  that  the  man  who  has  one 
hundred  thousand  dollars  invested  in  bonds  or  securities  was  re- 
quired at  that  time  only  to  answer  questions  like  this :  ' '  Bonds  and 
value."  I  suggested  that  there  ought  to  be  the  same  law  applied 
to  the  bondholder  and  to  the  holder  of  securities,  and  that  he 
should  be  required  to  inventory  his  bonds  by  giving  the  name  of 
the  corporation  that  issued  them,  and  the  series  of  the  bonds ;  and 
that  he  ought  to  be  required  to  give  the  name  of  the  stock  that  was 
taxable  that  he  put  in;  that  he  ought  to  be  required  to  give  an 
inventory,  just  like  the  farmer.  The  Governor  said,  ' '  I  believe  that 
is  right, ' '  and  recommended  it ;  and  the  bill  was  prepared.  I  think 
it  was  prepared  in  the  Attorney-General's  office,  and  it  was  a 
splendid  bill.  It  was  introduced  in  the  House  by  John  D.  Volz, 
a  member  of  the  House  at  that  time.  It  passed  the  House  with 
three  or  four  votes  against  it,  but  it  hadn't  more  than  passed  the 
House  until  the  tax  dodgers  found  out  about  the  bill,  and  they  had 
a  meeting  in  the  city.  I  was  watching  around,  because  I  was  help- 
ing to  put  the  bill  through,  not  as  a  paid  lobbyist,  but  because  I 
was  interested  in  the  matter;  and  I  got  in  the  tax  dodgers'  meeting, 
and  listened  to  all  they  said.  They  said  it  would  never  do,  and 
that  they  must  kill  it;  and  they  did  kill  it.  It  never  saw  the  light 
of  day  in  the  Senate. 

Now  wouldn't  that  appeal  to  anyone  as  a  just  measure?  Does 
it  not  appeal  to  you ;  and  would  not  it  appeal  to  the  people  of  the 
state  as  a  just  measure?  Do  you  wonder  that  the  farmers  are 
complaining  about  our  laws  when  they  have  to  answer  fifty  specific 
questions,  and  file  a  complete  inventory  of  their  personal  property, 
when  that  is  not  required  of  the  merchant  and  the  holder  of  in- 
tangibles ?  Certainly  it  is  not  required  in  the  same  way,  although 


182  INDIANA    UNIVERSITY 

there  has  been  some  improvement  in  that  particular  since  the  days 
of  Governor  Hanly. 

Mr.  Wolcott's  third  suggestion  is,  that  there  be  an  exemption 
of  household  furniture  and  personal  effects  to  the  value  of  a  cer- 
tain sum  which  he  does  not  name.  This  would,  of  course,  require 
an  amendment  to  the  constitution.  I  heartily  agree  with  the  reader 
of  the  paper.  But  why  exempt  only  personal  property? 

•  We  should  exempt  also  a  like  amount  of  the  value  of  a  home- 
stead owned  and  occupied  by  the  tax  payer.  Citizens  would  thus 
be  encouraged  to  own  their  own  homes.  Besides,  it  would  help 
lift  the  burden  of  taxation  which  under  any  system  rests  so  heavily 
upon  real  property.  The  law  should  also  provide  for  the  exemp- 
tion, or  partial  exemption,  from  taxation  of  real  estate  on  which 
forests  are  being  preserved  and  produced.  Something  should  be 
done  £o  induce  the  growing  of  timber.  Our  present  system  leads, 
not  to  the  conservation,  but  to  the  destruction  of  timber.  The 
farmer  cannot  afford  to  plant  out  his  farm  in  timber. 

The  next  suggestion  made  by  the  reader  of  the  paper  is,  that 
the  State  Tax  Commissioners  should  be  given  power  to  equalize 
assessments  of  personal  property.  I  concur  with  him  in  all  that 
he  has  said  on  that  subject.  Such  power  could  be  given  the  Board, 
however,  without  any  amendment  of  the  tax  clause  of  the  State 
Constitution.  It  is  a  mystery  why  such  a  law  was  not  enacted  long 
ago. 

It  would  perhaps  improve  the  administration  of  our  tax  laws 
if  county  and  township  assessors  were  appointive,  rather  than 
elective.  However,  much  would  depend  on  the  character  of  the 
law.  It  would  be  no  improvement  if  appointments  were  not  made 
under  civil  service  rules.  The  faction  of  a  party  in  power  would 
make  the  appointments  as  a  reward  for  political  service.  The 
people  in  Indiana  have  always  elected  their  county  and  township 
officers,  and  they  would  be  reluctant  to  agree  to  a  change.  The 
seat  of  the  trouble  in  Indiana  lies  with  the  system  rather  than 
with  the  assessors  who  have  been  sleeted  by  the  people.  For  the 
most  part,  particularly  in  country  districts,  they  have  been  faithful 
servants.  The  poorest  assessors  I  have  known  have  been  among 
those  appointed  to  assist  in  the  listing  of  city  property.  I  have 
lived  in  Indianapolis  seventeen  years,  and  in  that  time  I  have  been 
assessed  but  once.  The  other  times  I  assessed  myself.  Each  year 
I  filled  out  the  blank  left  by  the  assessor,  and  the  prepared  list 
was  handed  to  him  in  my  absence. 


TAXATION    IN    INDIANA  183 

The  one  time  that  I  was  assessed  was  year  before  last.  I  said 
to  myself  I  am  going  to  see  whether  they  will  assess  me  in  the  City 
of  Indianapolis.  Down  at  Columbus,  where  I  lived  before  I  moved 
to  Indianapolis,  the  assessor  came  up  to  me,  to  my  house  or  office, 
and  we  sat  down  together  and  made  up  a  list  of  the  property  on 
which  I  should  be  assessed  and  he  had  me  take  off  my  hat  and  hold 
up  my  hand  and  swear  to  my  list.  When  I  used  to  be  on  the  farm, 
where  my  father  lived,  the  assessor  would  come  out  into  the  field 
where  my  father  was,  and  sit  down  on  a  plow  beam,  and  they 
would  make  out  the  list  and  give  the  exact  number  of  horses  and 
cows,  and  approximate  the  number  of  bushels  of  corn  in  the  crib, 
and  all  that;  and  when  they  got  through  my  father  would  be 
sworn  to  it. 

After  I  came  to  Indianapolis  I  found  a  new  condition,  and  I 
said  to  myself  I  will  see  whether  or  not  I  can  be  assessed;  and  I 
said  to  my  wife,  "You  tell  the  assessor  to  come  to  my  office,"  and 
she  told  him.  He  said,  ' '  No,  no,  that  is  not  the  way ;  your  husband 
don't  understand  it."  When  she  reported  that  to  me  I  said,  "You 
tell  him  I  do  understand  it;  you  tell  him  to  come  to  my  office." 
I  finally  got  him  to  come  to  my  office.  That  was  in  the  spring  of 
1912.  I  made  out  my  tax  list  in  his  presence  and  signed  it,  and 
he  started  off.  I  said,  "Wait  a  moment.  You  are  not  through." 
He  said,  ' '  What  else  is  there  to  be  done  ? "  "  Why, ' '  I  said,  ' '  don 't 
you  know  what  is  to  be  done?"  "No,"  he  said,  "I  have  done 
everything  that  I  know."  "Well,"  I  said,  "you  have  to  swear 
me,"  and  I  turned  to  the  statute  and  showed  him  that  I  had  to 
be  sworn  to  my  tax  list.  Then  the  assessor  said  all  right,  but  he 
didn't  know  how  to  do  it;  and  I  had  to  repeat  the  oath  for  him. 
And  so  I  swore  to  my  tax  list.  If  I  ever  was  assessed  in  Indian- 
apolis that  was  the  time.  I  don 't  know  for  sure  but  what  I  assessed 
myself  then.  But  in  the  country  we  have  had  a  better  method  of 
assessment.  The  assessors  have  done  their  work  more  nearly  accord- 
ing to  law.  I  am  not  here  to  give  any  advice  to  the  taxing  officers. 
I  am  just  down  here  as  a  lawyer  who  is  away  from  his  office  and 
paying  his  own  expenses  because  he  is  interested  in  this  subject. 
For  twenty  years  I  have  been  interested  in  the  tax  question,  and 
it  does  seem  to  me  that  the  taxing  officers  ought  to  require  the 
men  in  charge  of  individual  assessments  in  the  big  cities,  to  ask 
each  tax  payer  what  intangibles  he  has,  and  ask  him  "How  much 
money  have  you  in  bank?"  He  has  the  right  to  do  it,  and  he 
ought  to  do  it.  That  is  the  way  it  is  done  in  hundreds  of  townships 


184  INDIANA    UNIVERSITY 

\ 

in  the  State  of  Indiana.  Particularly  is  that  true  in  the  country, 
and  they  get  the  property  in  the  country  better.  Some  have  said 
in  this  conference  that  the  farmer  only  pays  forty  or  fifty  per 
cent,  on  his  land.  Mr.  Milligan  yesterday  spoke  about  a  man  who 
had  a  note  for  a  thousand  dollars,  a  promissory  note  bearing  four 
or  five  per  cent,  interest,  and  he  had  to  pay  two  and  a  half  or  three 
per  cent,  taxes  out  of  that  four  or  five  per  cent.,  and  that  he  cannot 
afford  to  do  it.  You  know  that  the  farmer  in  Indiana,  if  he  didn  't 
live  on  his  own  farm  and  work  mighty  hard,  and  didn 't  have  pretty 
good  rains,  would  not  make  any  six  per  cent,  on  the  money  invested ; 
and  the  man  who  loans  his  money  at  six  per  cent.,  and  gives  it  in 
at  full  value  is  getting  just  as  big  a  return,  on  the  average,  as  the 
farmer  on  the  average  farm;  and  he  should  give  it  in.  Nothing 
else  is  just,  and  this  conference  ought  not  to  stand  for  a  law  that 
does  not  appeal  to  justice. 

If  we  are  going  to  have  a  great  movement  in  this  State  for 
better  conditions,  for  better  laws  concerning  taxation,  we  must 
appeal  to  men's  ideas  of  right  and  wrong.  Nothing  but  a  moral 
question  forms  the  basis  of  any  great  movement.  Get  the  people 
to  understand  that  they  are  not  having  fair  play.  That  was  a 
splendid  suggestion  of  Dr.  Adams  this  morning.  If  the  people  in 
this  state  could  understand  the  inequalty,  the  iniquity,  under 
the  present  system,  they  would  demand  substantially  all  the  laws 
that  have  been  suggested  here,  that  have  the  elements  of  justice 
back  of  them.  If  every  man  who  owns  land  understood  that  the 
men  who  have  their  money  in  intangibles  are  not  paying  taxes, 
and  that  the  taxes  are  falling  upon  the  man  who  has  the  land, 
they  would  not  stand  for  it.  As  I  said  a  moment  ago,  the  seat 
of  the  trouble  in  Indiana  lies  with  the  system,  rather  than  with 
the  assessors  who  have  been  elected  by  the  people. 

The  Wisconsin  plan,  in  my  opinion,  is  the  one  which  should  be 
adopted  in  Indiana.  That  is  the  plan  that  was  suggested  here 
this  morning.  There  they  have  a  property  tax,  and  they  have 
the  income  tax.  The  tax  on  the  property  is  levied  by  the  assessors 
elected  by  the  people  in  their  various  townships  and  counties. 
That  is  the  general  property  tax,  but  the  income  tax  is  levied  by 
the  supervisors,  or  the  appointees,  of  the  State  Board  of  Tax  Com- 
missioners ;  and  these  assessors  of  income  become  the  supervisors  of 
assessment  for  general  property.  If  a  man  has  an  income  tax  of 
fifty  dollars  and  he  has  a  property  tax  of  forty-five  dollars  they 
subtract  his  property  tax  from  the  income  tax,  so  that  he  does  not 


TAXATION    IN    INDIANA  185 

pay  on  both;  that  induces  the  man  to  give  in  his  intangibles,  they 
are  going  to  get  his  income  tax  anyhow. 

We  will  never  get  a  just  tax  system  in  Indiana  until  we  have 
an  income  tax.  There  you  get  at  indirectly  the  taxation  of  intangi- 
ble property.  You  cannot  do  it  by  taking  intangibles  off  of  the 
tax  list.  A  man  who  will  not  give  in  his  property  if  taxed  three 
per  cent.,  would  not  give  it  in  if  taxed  at  a  half  per  cent. 

I  fully  agree  with  State  Tax  Commissioner  Wolcott  as  to  his 
last  suggestion,  that  the  basis  of  taxation  of  all  property  should 
be  its  true  cash  value,  and  that  there  should  be  a  limit  to  the  rate 
of  assessment.  The  tax  clause  of  our  Constitution  should  be  so 
amended.  Mr.  Wolcott 's  argument  in  that  branch  of  his  paper  is 
strong  and  unanswerable.  Under  our  Constitution  of  1852,  there 
was  no  limit  to  the  rate  of  assessment,  but  it  did  provide  for  a 
limit  to  municipal  indebtedness,  which  provision  has  proved  to  be 
a  valuable  safeguard. 

In  the  list  of  the  new  laws  suggested  by  Mr.  Wolcott  I  am  sur- 
prised that  he  has  not  named  the  income  tax.  A  new  constitution 
should  open  the  way  for  taxing  of  incomes.  Such  a  law  is  the 
surest  way  of  placing  the  burden  of  taxation  where  it  properly 
belongs,  and  the  surest  way  of  reaching  the  tax  dodger  who  keeps 
his  fortune  in  intangibles  and  makes  false  returns  to  the  assessor. 

While  I  differ  from  State  Tax  Commissioner  Wolcott  as  to 
some  of  the  laws  he  would  enact,  I  do  agree  with  him  that  the 
tax  clause  of  our  constitution  must  be  amended,  and  in  conclusion 
I  submit  the  following  as  the  tax  clause  which  should  be  incor- 
porated in  Indiana's  new  constitution  which  I  hope  we  are  soon 
to  have: 

"Sec.  1.  The  General  Assembly  shall  have  power  to  provide 
by  law,  an  equitable  system  for  raising  state  and  local  revenue. 
All  taxes  shall  be  uniform  upon  the  same  class  of  property  within 
the  territorial  limits  of  the  authority  levying  the  tax,  and  shall 
be  levied  and  collected  for  public  purposes  only.  All  property 
assessed  for  taxation  shall  be  assessed  at  its  true  cash  value;  but 
the  maximum  rate  of  taxes  that  may  be  levied  for  all  purposes 
shall  not  in  any  one  year,  in  any  taxing  district,  exceed  fifteen 
mills  on  each  dollar  on  the  total  valuation  of  all  the  property  as 
listed  and  assessed  for  taxation  in  such  district.  The  power  of 
taxation  shall  never  be  surrendered,  suspended  or  contracted  away. 

"Sec.  2.  Public  burying  grounds,  and  all  property  both  per- 
sonal and  real  used  exclusively  for  municipal,  educational,  literary, 


186  INDIANA    UNIVERSITY 

scientific,  religious  and  charitable  purposes,  shall  be  exempt  from 
taxation;  also  household  goods  to  the  amount  not  exceeding  in 
value  the  sum  of  $150.00  for  each  individual,  and  real  estate  to 
the  value  of  $150.00,  when  occupied  by  the  individual  as  his  home. 

''Sec.  3.  Laws  may  be  passed  providing  for  the  taxation  of 
incomes,  and  such  taxation  may  be  either  uniform  or  graduated, 
and  may  be  applied  to  such  incomes  as  may  be  designated  by  law ; 
but  a  part  of  each  income,  not  exceeding  $2,000  may  be  exempt 
from  taxation. 

"Sec.  4.  Laws  may  be  passed  providing  for  taxation  of  the 
right  to  receive,  or  to  succeed  to,  estates,  and  such  taxation  may 
be  uniform,  or  it  may  be  so  graduated  as  to  tax  at  a  higher  rate 
the  right  to  receive,  or  to  succeed  to,  estates  of  higher  value  than 
estates  of  smaller  value.  Such  tax  may  also  be  levied  at  different 
rates  on  collateral  and  direct  inheritances,  and  a  portion  of  each 
estate,  not  exceeding  $20,000,  may  be  exempt  from  taxation." 

That  is  all  I  care  to  say  in  the  discussion  of  the  paper  that  was 
read  this  afternoon  by  Senator  Wolcott;  but  being  a  member  of 
the  Committee  appointed  by  the  Chair  yesterday  to  report  upon 
an  organization  for  the  Indiana  Tax  Association,  I  would  like  to 
supplement,  or  rather  reinforce,  what  was  said  by  Mr.  Lewis 
this  morning  in  making  the  report  as  Chairman  of  the  Committee. 

Your  committee  endeavored  to  select  as  the  first  officers,  men 
whose  characters  would  guarantee  that  the  new  organization  would 
get  started  right,  and  that  is  important.  I  think  it  is  fitting  that 
we  should  select  as  the  first  president  a  man  who,  more  than 
anyone  else,  is  responsible  for  the  success  of  this  conference,  and 
this  conference  has  been  a  success.  Many  similar  conferences 
have  been  held  in  various  parts  of  the  country,  which  conferences 
have  been  attended  by  .some  who  have  been  with  us  at  this  meet- 
ing, particularly  the  gentlemen  who  are  here  from  other  states. 
It  has  been  said  by  these  gentlemen  that,  all  things  considered, 
this  is  one  of  the  best  tax  conferences  ever  held  in  this  country.  It 
is  gratifying  to  hear  these  words  of  commendation. 

The  good  influence  of  this  meeting  will  not  end  with  our  ad- 
journment. The  proceedings  of  this  conference,  which  are  to  be 
published,  should  have  the  widest  circulation,  to  the  end  that 
many  hundreds  of  the  citizens  of  Indiana  may  be  better  informed 
on  questions  of  taxation,  and  be  the  better  prepared  to  assist  in 
the  reforms  which  must  come.  A  wide  circulation  of  the  proceed- 
ings of  this  conference  will  help  to  educate  leaders  as  to  the  in  jus- 


TAXATION    IN    INDIANA  187 

tice  of  present  tax  laws,  and  will  help  to  create  that  public  senti- 
ment which  will  be  necessary,  if  any  real  reforms  are  brought  about. 
The  people  must  be  aroused.  I  mean  the  great  middle  class,  par- 
ticularly the  home  owners.  If  the  home  owners  of  Indiana  knew 
the  unjust  tax  burden  they  were  now  carrying  reform  of  our  tax 
laws  would  be  hastened.  The  Indiana  Tax  Association  should  see 
to  it  that  the  people  of  Indiana  become  familiar  with  the  defects 
of  our  laws. 

There  is  danger  of  an  organization  of  this  kind  falling  into  the 
hands  of  tax  dodgers.  They  control  legislatures,  oftentimes  good 
men;  and  they  are  not  members  of  it  either.  They  can  get  into 
and  become  members  of  this  organization,  and  I  believe  that  a 
movement  of  this  kind  should  be  in  the  interest  of  fair  play,  should 
be  in  the  interest  of  all  the  citizens  of  the  State  of  Indiana,  as  was 
stated  by  Mr.  Lapp  here  this  afternoon.  And  if  we  are  going  to 
have  a  conference  that  stands  for  justice  we  cannot  have  such  a 
conference  if  it  is  controlled  by  the  men  who  do  not  pay  their 
taxes.  We  must  have  an  association  that  will  stand  for  such  amend- 
ments to  the  constitution  as  will  permit  the  enactment  of  an  income 
tax,  and  will  permit  the  classification  of  property;  permit  the 
enactment  of  such  laws  as  will  reach  the  tax  dodger.  The  people 
of  Indiana  will  expect  the  legislatures  and  constitutional  conven- 
tions to  find  a  method,  as  they  found  a  method  in  the  State  of 
Wisconsin,  of  getting  at  the  tax  dodger  in  some  way.  They  have 
gotten  at  him  in  that  state  better  than  they  have  in  any  other  state 
of  the  Union.  We  must  take  off  our  hats  to  Senator  LaFollette's 
state,  whatever  we  may  think  of  him.  So  far  as  the  laws  in  that 
state  go,  measured  by  the  standard  of  justice  between  man  and 
man,  it  can  be  said  that  there  are  no  statutes  in  any  state  of  the 
Union  that  are  comparable.  We  must  have  a  tax  conference  and 
a  tax  association  in  Indiana  that  will  not  be  dominated  by  any 
special  interests ;  and  we  cannot  have  it  and  maintain  it  indefinitely 
unless  it  is  controlled  and  managed  by  this  University. 

You  know,  as  I  know,  that  the  popularity  of  Indiana  University 
has  grown  year  by  year  until  from  one  end  of  the  State  to  the 
other  the  people  believe  in  the  University;  and  they  will  continue 
to  believe  in  it  until  this  University,  like  some  universities  I  might 
name,  in  other  states,  has  stood,  not  for  justice,  but  for  special 
privilege. 

Now  I  am  admonished  by  the  presiding  officer  that  my  time 
has  expired,  and  I  must  close.  I  only  wish  to  say  further,  that 


188  INDIANA    UNIVERSITY 

I  hope  the  work  of  this  tax  conference  will  be  continued  by  the 
Tax  Association  in  direct  connection  with  Indiana  University.  Let 
us  do  what  we  can  to  make  the  future  meetings  of  the  Indiana 
Tax  Association  even  better  than  this  one  has  been.  I  thank  you. 
(Applause.) 

CHAIRMAN  WHITE:  I  am  just  wondering  if  we  are  going  to 
have  a  campaign  of  punishment  for  the  tax  dodgers  of  this  state 
who  make  improper  returns?  "Who  is  going  to  throw  the  first 
stone  ? 

We  only  have  a  few  minutes  before  it  will  be  necessary  to  ad- 
journ in  order  to  catch  the  4 :10  train.  There  was  a  Committee  on 
Resolutions  appointed  early  in  the  conference  to  report  on  resolu- 
tions. Has  that  Committee  any  report  to  make?  Are  there  any 
resolutions  ? 

REPORT  OP  COMMITTEE  ON  RESOLUTIONS 

MR.  DAN  M.  LINK:  Mr.  Chairman,  the  Committee  has  had 
submitted  to  it  no  resolutions,  consequently  what  it  has  to  report 
is  formal  and  very  brief.  It  offers  the  following: 

Be  it  Resolved,  That  this,  the  first  Indiana  Tax  Conference, 
corfimends  the  efforts  of  Indiana  University  to  bring  together  the 
tax  payers  of  the  state  for  the  purpose  of  studying  our  tax  condi- 
tions and  considering  improvements  therein;  and  we  especially 
express  our  appreciation  of  the  labors  of  Dr.  Bryan,  President 
of  the  University,  and  Dr.  Rawles,  head  of  the  Extension  Division, 
in  taking  the  initiative  in  inaugurating  this  conference. 

Be  it  Further  Resolved,  That  it  is  the  sense  of  this  conference 
that  any  general  improvement  in  taxing  conditions  can  only  be 
brought  about  by  the  education  of  the  tax  payers  as  to  their  rights 
and  duties  as  citizens,  and  the  arousing  of  public  sentiment  in 
favor  of  such  amendments  to  or  changes  in  the  present  tax  laws  as 
may  cause  a  more  equitable  adjustment  of  the  burden  of  taxation, 
and  that  the  object  and  purpose  of  this  Association  shall  be  to 
stimulate  public  interest  in  the  study  of  taxation,  to  gather  and 
compile  statistics,  and  to  print  and  circulate  the  same,  and  such 
other  literature  as  the  Association  may  deem  worthy  of  study. 

Be  it  Further  Resolved,  That  this  conference  extends  its  thanks 
to  the  distinguished  experts  on  taxation  from  other  states  who 
have,  without  compensation,  come  long  distances  to  address  this 
conference. 


TAXATION   IN   INDIANA  189 

The  foregoing  is  signed  by  the  Committee,  Dan  M.  Link,  E.  H. 
Wolcott  and  Oscar  L.  Pond.     I  move  its  adoption. 
The  motion  was  seconded. 

CHAIRMAN  WHITE:  It  is  moved  and  seconded  that  the  report 
of  the  Committee  on  Resolutions  be  adopted  by  the  conference. 
Are  you  ready  for  the  question?  All  in  favor  of  the  same  will 
signify  by  saying  aye.  Contrary,  no.  It  is  carried,  Mr.  Secretary. 

Is  there  anything  further  to  be  presented  from  the  Committee  ? 

MR.  DAN  M.  LINK  :     No,  Mr.  Chairman. 

MR.  W.  K.  STEWART,  of  Indianapolis:  Mr.  President,  I  should 
like  to  move  that  a  vote  of  thanks  be  tendered  Indiana  University 
for  the  kindly  hospitality  that  has  been  extended  to  us. 

The  motion  was  seconded  and  agreed  to. 

CHAIRMAN  WHITE:  Is  there  anything  further  to  come  before 
the  conference  ?  It  not,  a  motion  to  adjourn  will  be  in  order. 

MR.  DAN  M.  LINK  :  Mr.  Chairman,  I  move  that  the  conference 
do  now  adjourn. 

The  motion  was  seconded  and  agreed  to,  and  the  conference 
adjourned,  sine  die. 


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